Tips on saving for your new home

Q: What are the best ways for first home buyers to save the money for the upfront costs of buying a new home?

A: “As the property market in major metropolitan cities continues to experience high demand, many new entrants and first home buyers feel ‘squeezed out’. There are a few ways you can get in. Couples can learn to live on one income and save the other. Living with parents or flatmating can also help. For established families, working with a financial planner can be extremely beneficial for putting together a plan.”

Domain’s research found that over half of those saving for a property purchase reduced spending on entertainment, eating out and clothes and accessories. This was followed closely by reducing spending on holidays and groceries.

There are many ways to cut household costs if you’re willing to do your homework, including reducing your utility bills, moving to a cheaper rental property, or even considering purchasing with friends or family.

ASIC’s MoneySmart website has some more good ideas on reducing your household expenses if you’re going to go all out. Make sure you have a good idea what your home buyer budget will look like when you start saving for your new home so you have some concrete figures to work towards.

Q: How can buyers be sure they will be able to afford the ongoing costs?

A: “Having the required deposit and being able to borrow money is only the first step in owning a property. Early practice of living on one income (for a couple) or seriously reducing your unnecessary spending on luxuries can set you on the correct trajectory. After the purchase, maintaining on-time payments will reduce the chance of incurring dishonour fees, and being disciplined with your spending will also help you pay the home off faster.”

Q: How much “fat” would you recommend people have to guard against getting into trouble with a large, unexpected expense? Should home buyers take out income insurance?

A: “When working with buyers, we recommend they have a ‘plan B’ in case ‘plan A’ fails. Plan A is usually buy the property, and do all you can to pay it off…but what if something goes wrong? The most common scenario is loss of employment. But buyers neglect more serious scenarios such as being diagnosed with a serious illness or acquiring a disability by accident or through illness. For some loss of employment, you need a cash reserve of few thousand dollars to see you through, but for more serious life challenges like sickness or death, then it is very important to invest in a solid income protection policy.”

MoneySmart has some sound advice on saving for your property purchase.