Buying your first home? It’s an important financial decision that can lay the foundation for a secure financial future but it is one that takes planning and commitment.
The more money you save, the more choices you will have – from the opportunity to access a greater range of available properties and also a wider variety of available lenders willing to fund your home ownership and property investment dreams.
A High Interest Bank Account Helps You Save Money
So, you’ve worked out the budget of how much you can save – now it’s time to find the best place to watch those savings grow.
Your everyday transaction account is not the best choice.
For one thing, the temptation to use the cash is hard to resists when that ‘tap and go’ ATM card makes it too easy to withdraw on a whim.
Research bank account with low account-keeping fees and higher interest rates and if they reward deposits with no withdrawals, consider it, but be honest with yourself about how long you can afford to have your money locked away because the penalty you face for withdrawing outside of the agreed terms if a financial emergency does crop up can negate any positive savings you might have made.
Understand your loan to value ratio
Loan to value ration (LVR) is a critical factor in planning your mortgage budget.
To plan how much you can save, make sure you understand how much you need to save to get yourself that property you want.
LVR is calculated by dividing the total amount of your home loan by the appraised value of the property.
Any lender you apply to will use your personal LVR to assess how risky it might be to lend you a large amount of money for your home loan. Talking to a professional mortgage broker can help you understand this fully, as some lenders have different criteria around this LVR and where you might fit in to their expectations.
In general terms, the greater the LVR, the higher the risk you present because the lender may not be repaid if you default on your loan and they have to sell the property. Lender’s Mortgage Insurance is another fee that may need to be paid if your LVR is more than 80%. Some lenders use LVR to define the interest rate on your mortgage. So, if your LVR is higher than 80%, you may not be offered the same competitive interest rate as someone whose LVR is below 80%.
To avoid these additional fees and higher interest rates, it is important to understand the amount you really need to save – in order to cover all the associated costs of a home loan.
Top Tips To Save For Your Home Loan
1. Save 10% of your income
It works if you stick with it. Create a separate bank account with a higher interest rate and arrange for money to automatically transferred each week or month when your income hits your bank account. Small steps are a great way to start any journey.
2. Sell things online
Got too much stuff you no longer need or want? Even well cared-for clothing, books and toys your children no longer want can fetch some good prices if you take a bit of time to show them off well on popular online market places like gumtree or eBay.
3. Get rid of debt
Not strictly a savings tip but by reducing your debt, you are saying goodbye to interest charges and other fees. Before you commit to a huge home loan, it makes sense to prove you can stick to a budget and service your smaller debts on time.
4. Live more simply
Sure that cable TV subscription might be entertaining but it could be adding hundreds to your annual bills. And do you really need that top-shelf toilet paper when no-name brand will do the job just as well? There are many ways to trim your spending without impacting on your lifestyle enjoyment. Even cutting down from two take-away lattes to one per day can save you hundreds of dollars in the course of a year.
For more tips on how to save for your home loan, talk to us at Lending Specialists, the home loan experts, to find out the details of projected monthly repayments and other ways you can reduce the costs of your next property purchase to help make your savings goal achievable.