Saving for a house while renting

Constructing A Savings Plan

According to most research, over half of Australian renters spend more than around 30% of their income on rent. However, there are strategies that you could apply to save for a house deposit while renting if you are a bit resourceful! This post will cover some strategies and tactics for saving for a house deposit while renting that might help you put yourself up for future home ownership. Continue reading!

Tips For Saving For A New House While Renting

Paying rent while putting away thousands of dollars in your savings account for a down payment on a home might sound impossible; however, it is achievable if you follow the steps below.

Here are some top hints on how to save for a house while renting.

Get professional advice

Buying a dwelling and land package is one of the most significant investments you'll ever make in your lifetime. Therefore, it stands to reason that you should seek assistance from a competent finance expert or real estate broker to keep you on track. A session with a specialist could assist you in developing appropriate saving habits that will improve your financial status.

It will also teach you how to sufficiently construct a savings plan and handle complicated topics like your debt and credit score, all of which are vital to grasp when asking for a loan.

Create a budget and a savings strategy

Now that you've set your mind to owning the house that you are renting, it's time to develop a budget and savings strategy to help you achieve your dream. A savings plan considers your monthly expenses, such as your rent, house bills, groceries, entertainment, and other charges, to help determine how much you could save each month. With a budget, you could simply track and estimate your day-to-day costs and set aside some money for your loan deposit.

Create a special savings account

Regardless of how you handle your money, opening a special high-interest savings account for your deposit funds is always a good idea. A high-interest account could help you reach your goal faster, and having a separate account for your deposit savings allows you to track your amount as it increases conveniently.

It may be worthwhile to browse around for an account with high-interest rates and cheap fees. Many high-interest savings accounts offer very attractive introductory interest rates – typically for approximately four months before reverting to ordinary rates – and they might be a terrific way to jumpstart your savings.

Look for a savings account featuring a high introductory rate and a decent variable rate; this is the key to maximising your interest earnings. Long-term deposit savings accounts could also be an excellent strategy to take advantage of the interest rates. In this situation, you will simply deposit your cash into this account for a specified length of time, generally about 12 months to 10 years.

While you won't be able to access the funds during that time, it's an excellent way to lock in a higher interest rate and put your savings to work by making you some money.

Automate your savings process

Transferring money to a savings account immediately after you get paid is a terrific method to enhance your savings for a new house. You could request that your employer direct a portion of your income to a savings account or set up an automated transfer from the account into which your wage is received.

Determine how much to save

Quite a number of factors determine the amount you need to save for your house. Ask yourself these questions: where will you be purchasing? What are the median property values in the neighbourhood? Are you purchasing a pre-existing home or a house and land combination off the plan? These factors will influence how much money you need for a deposit.

A house loan deposit is typically approximately 20% of the property's value. It is possible to obtain a loan with a lesser deposit amount. However, the lender's mortgage insurance (LMI) would need an extra cost. The LMI compensates for your lower deposit by protecting your lender if you happen to default on your payments.

Set smaller goals and a timeframe

Saving for a housing deposit will require a lot of discipline, and the goal might even seem impossible to achieve. As a result, it is advisable to create smaller saving goals, perhaps once every three months or even once a month, to avoid feeling overwhelmed.

Determine your broader objective, break it down, and even celebrate yourself each time you meet even the most minor goal. This will put you in a motivated frame of mind as you reward yourself for your accomplishments. Having a set timeframe will also help you focus your efforts on reaching your goal by the end date rather than living in "savings mode" with no ending in sight.

Improve your credit score

Obtaining a house loan without a good credit score is not impossible; however, it is more challenging. You might already know what your credit report looks like, but if not, you should look into it. Luckily, many credit card reporting firms are available to provide you with this report.

However, even if you have a few black marks on your credit report, it's not the end of the world. You could take steps to resolve this, and you will want to ensure this issue is taken care of ASAP before applying for loans to ensure you don't get turned down.

Move to a less expensive rental space

While trying to save for a house while renting, you should consider hunting for a less expensive rental property. You and your family might enjoy your current neighbourhood; however, it is advisable to relocate to a less costly region to reduce your rental expenditures if it is incredibly pricey.

Moving to a less expensive apartment might not sound appealing, but it is a worthwhile compromise if you are serious about saving for a security deposit as soon as possible. You could temporarily relocate to a shared house or return home to save money. Although this might seem like a massive sacrifice, keep in mind that it is not permanent, and you will have your property by the end of it all.

Reduce wasteful spending

If you are adamant about purchasing your first house, you will have to make some sacrifices, including cutting back on wasteful spending. This is to say that you might have to cut back on certain leisure activities.

Such cutbacks include activities like dining out regularly, buying more than a store-bought coffee per day, or perhaps terminating your gym membership or a subscription to one of the streaming services.

Basically, try to live as cheaply as possible and find alternative methods to meet your needs. You'd be shocked at how much cash you can save by eliminating extravagant spending.

Earn more income

If you want to save for a down payment on a house, you should look into ways to generate extra money. Your nine-to-five job does not have to be your sole source of funds. You could seek other methods to supplement your income, such as applying for freelancing employment, selling your used stuff online, or even getting a second job if possible.

Negotiate your rent

Rent is likely to be your most significant expenditure, so why not attempt to have it reduced, if possible? If you intend to stay at that property for an extended period, you could talk to your landlord about lowering the rent if you sign a longer lease. Depending on where you reside, the landlord might be keen to obtain a long-term renter.

Take Advantage Of Available Tax Concessions

While you're saving for your first home, there are a few tax breaks that you could take advantage of. Here are a few to consider.

First Home Super Saver (FHSS)

You might also be able to meet your savings goals more quickly if you take full advantage of the FHSS. You could save cash by contributing to your super fund through this arrangement. Since your super fund is subject to preferential tax treatment (for instance, it is taxed at a much lower rate than your income), you will be able to reach your savings goal faster. The FHSS plan also has limitations and restrictions, so be sure you qualify first.

First Home Owner Grant (FHOG)

To begin with, the FHOG initiative is designed to assist Australians in taking their first step up the property ladder. FHOGs are accessible in every state; however, they have somewhat varied qualifying requirements and give varying amounts. All FHOGs provide a payment that could substantially impact the amount you need to save for your first home. For further information, review the FHOG details in your state.

A guarantor loan

Aside from government-provided discounts, there are a few more methods to assist you in achieving your goal of owning a house more quickly. One option is to obtain a guarantor loan. In this case, a guarantor (usually a family member) would accept responsibility for your loan payments if you default.

This means a money lender would consider you a more negligible risk. Moreover, you might acquire a loan with a much lower deposit. In addition, a guarantor loan eliminates the requirement to pay the lender's mortgage insurance.

Fixed Vs. Variable Home Loans

The main difference between a fixed and variable house loan is the interest rate. A fixed home loan has an interest rate fixed for a defined period, often around one to five years. This implies that your payments will remain constant even if interest rates rise. On the other hand, variable home loan interest rates are known to change over time.

As a result, repayments alter, which could be beneficial or detrimental depending on Australia's need for cash or credit. Variable rates are often much lower than fixed rates, but they are a considerably riskier alternative for you as a home buyer because the ups and downs are uncontrollable.

As seen above, both types of loans have advantages and disadvantages, and it is critical to weigh your alternatives to select the best loan for you. If you are uncertain of the loan that best suits you, it is advisable to consult with a reliable mortgage broker.

The Continuing Costs Of House Ownership

Owning a house might come with certain continuing expenses, and it's wise to become acquainted with them to avoid surprises when the bills arrive. Let's look into some of them.

Maintenance costs

Owning a house comes with additional costs that might be substantial at times. Maintenance is one of the ongoing expenditures of owning a property. Housekeeping expenses vary from month to month, with some months being significantly inexpensive (or perhaps non-existent) and others being quite expensive.

For instance, if you own a house, at some point, you will most likely need to repair the gutters. Other maintenance costs include mending leaking faucets and damaged toilets, gardening, and repainting tasks. Maintenance is merely one of the expenses associated with owning a house in Australia.

Insurance

Insurance of the house and its contents is an additional immediate and continuous expenditure incurred after purchasing a property. Home insurance, also known as property insurance or building insurance, often covers your primary dwelling place, the garage, other outbuildings that can be closed, and anything "permanently connected or fastened" to a home, such as light fixtures and built-in closets.

Contents insurance, on the other hand, protects all items within your home that aren't permanently attached to the walls or floor, such as furniture, television, and refrigerator. Both protect against a wide range of hazards, including fire, storm, and flood damage.

The two forms of coverage are combined in a house and contents insurance. It is possible to have separate policies for the home and possessions, but most individuals combine both into one.

Utilities

Most apartment dwellers are accustomed to paying for utilities such as power, cable, and internet every month. When you buy a house, however, you will incur monthly costs for utilities you are not accustomed to paying as a renter. When looking for a house, make sure you budget for these.

Property taxes

You must pay property taxes on your house every year, which might vary greatly depending on where you live. If you have a mortgage, you will usually pay your property taxes in monthly instalments to your lender.

Stamp duty

Stamp duty is a sort of tax collected by the state government when you purchase real estate. Unlike the lender's mortgage insurance (LMI), you will have to pay stamp duty when you acquire your home. The cost of stamp duty varies based on where you reside. Stamp duty in South Australia, for example, is typically roughly 4% of the purchase price of your home.

Council rates

When you purchase a residence, you must pay the vendor the remaining annual or quarterly fees, like water and land. These will start from the date of settlement and will be specific to the property and locality.

Body corporate and strata fees

If you buy an apartment, condominium, or townhouse, you must pay body corporate or strata fees. These encompass the upkeep of common spaces on and around the shared property, as well as the administration of the body's corporate/strata management.

Get Closer To Home Ownership

As you have seen in this post, saving for a home deposit while paying rent necessitates budgeting, hard work, and a basic understanding of finance. But it is possible. Yes, it might be challenging if you have other financial responsibilities, such as a car loan, large medical expenses, or a personal loan.

However, with careful preparation and dedication, you may become a first-time homeowner in no time. If you wish to begin this procedure, contact a professional building inspection service that can advise and support you every step of the way.