With all the talk about homes being unaffordable and with capital city property markets achieving record price growth, first home buyers and indeed, first-time investors must save up a hefty deposit to get a foot on the property ladder.
Many are finding it difficult – because there’s a lot of sacrifices involved.
Essentially, they must first learn how to spend less than they earn, before they can establish habits to save the difference until they build a deposit.
Too many young Australians don’t budget so they don’t know where their money is going, while others don’t have a clearly defined goal, so it’s harder to have the motivation to save.
If you don’t budget, it means you don’t know where your money has gone at the end of the month.
This is a classic form of self-sabotage as it means you’re taking action – in this case, spending money each month – without information (ie. analysis of where all of your money goes, and how you could trim your spending).
If you’re serious about your property ownership goals, then it’s time to carefully and honestly assess your current spending habits.
Do you bring a cut lunch to work every day, or are you a ‘take away’ fan from way back?
Similarly, buying fast food and soft drinks while you’re out shopping or running errands on a weekend can eat into your potential savings in a big way.
While you’re trying to save for your deposit, unfortunately, you’ll have to forego some short-term pleasures for the long term gains.
You’ll need to resist the temptation to buy all the latest gadgets and think about whether you really need all of those creature comforts – such as pay-TV, magazine subscriptions, gym memberships and the rest – if they’re going to stand in the way of your property ownership dreams?
While you’re trying to save a deposit, you should also avoid putting things on a credit card or taking out loans while you’re in savings mode.
This is one of the biggest no-nos of all.
If you can’t afford it, you probably don’t need it – this has to become your personal motto.
It’s all part of the process of practising delayed gratification; we live in an “I want it now” society, so train yourself to resist temptation.
Other than budgeting, I believe one of the main ways that would-be property owners sabotage their dreams is failing to set a goal.
You need to think about the home you want to own, in very specific terms:
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- Is it your first home or are you investing in property?
- Ideally, where will the property be located?
- What will it look like?
- How many bedrooms will it have?
- Will it be new or a renovator’s delight?
The idea is to stay focused on your goal.
A good way to do this is to have a look through the real estate lift-out in your local paper and cut out some pictures of the property you would like to buy.
Alternatively, you might decide to drive around your target neighbourhood and take some photos of properties that fit your goals.
Then, put these images somewhere prominent so you will see them every day.
Stick it on the fridge if you have to!
Once you have your goal in mind, it’s time to put a price tag on it.
Work out how much you will need to pay for it and then you will have an idea of how much you will need to borrow.
Are you going to try to save a 20% deposit or will you be happy with a 10% deposit (and payment of a lenders mortgage insurance premium) if it means getting into your own home sooner?
The key is to keep your savings goal achievable, so determining your budget first and foremost will help you determine your savings goal.
Once you have a handle on what you need to save, write down this amount next to the picture of the property you intend to buy.
This attaches your savings goal to your property ownership goal, giving you even more incentive to stick with your plan.
Most people don’t know what the banks look for when assessing you for a loan application and the reality is, your knowledge gap here can be the difference between loan approval and a rejection.
There are a number of things you can do, with your mortgage broker’s guidance, to improve your chances of being approved for property finance.
They include, but are not limited to, the following:
- Paying down your credit card debts and lowering your credit card limits (or cancelling them altogether).
- Demonstrating financial responsibility. The banks like to see you’ve paid off previous debts in a timely manner, as it reflects your attitude towards money and personal responsibility.
- Checking your credit file regularly at www.mycreditfile.com.au to make sure you have no outstanding black marks against you.
- Maintaining consistent employment. The banks value stability, so an applicant with a consistent employment record will be view more favourably than someone who keeps moving jobs.
The reality is, buying property in today’s market can be a difficult goal to achieve – but that doesn’t mean it’s impossible.
Despite the challenges involved in trying to save a deposit, there are plenty of factors working in property buyers’ and investors’ favour, including record-low interest rates that seem set to stay low for the foreseeable future.
By getting clear on your goals and committing to achieving them, you can make huge strides towards your property ownership dreams.