The basics you should sort out while saving for your home deposit

By Anna Chisholm

ABC Lifestyle

Topic:Personal Finance

Saving up for a home deposit can take years, but experts say there are other tasks you can tackle while you save. (Adobe Stock)

The process of purchasing a home can feel overwhelming.

Beyond putting money aside for a home deposit, it can be hard to know how to prepare.

But there are steps you can take — while you're still saving — that will help you get to the point of signing on the dotted line.

Our experts

Learn about your options and mistakes to avoid

Mortgage broker Craig Morgan says there is an advantage to being a first home buyer, because it can mean you are aware that there's a lot you don't know a lot, and are willing to learn.

He explains that people buying a second or third property can assume they know everything, but "things change so much" and it might have been a decade since their last purchase.

"Gaining some knowledge and some preparation is the absolute key," Mr Morgan says.

Once you've started saving, Mr Morgan says you could approach a mortgage broker to get a better understanding of your borrowing capacity.

There are online borrowing calculators that can help with this too, but they are not as accurate, he says.

"Your income position is not going to change for most people dramatically over the course of one or two years of saving. Whilst you may not have the deposit yet, you can at least find out what you can afford."

He says there are plenty of loan officers at banks and mortgage brokers that will do this for free (they will be hoping you return later on but you should not feel obliged to).

Financial educator Natasha Janssens also recommends doing some research and seeking out professional advice before you have your entire deposit saved.

"Twelve months to two years out is a great time … you're going to have so much information to absorb, and you'll have more questions that will arise later."

This will set up your expectations and help you avoid some of those common mistakes people unknowingly make in those crucial final months.

For example, "this is not the time to suddenly be getting a car loan, a credit card [or] quitting your job," she says.

Financial adviser Scott Taylor says taking the time to research first‑home buyer incentives "early on your journey" may allow you to utilise the first home super saver scheme.

Put simply, "This is where you can salary sacrifice part of your wage into super or make a one‑off contribution to super from your savings and claim it as a tax deduction and then pull that money out when you're ready to purchase a home."

Mr Taylor says you need about three years to "fully maximise" the benefits, so it helps to plan ahead.

Get clear on your own and shared priorities

If you're buying with a partner, you want to really understand each other's priorities, Ms Janssens says.

Taking the time to talk about the significance of a partners' "non‑negotiables", "must haves" and "nice to haves" will help when the time comes to negotiate and compromise.

Natasha Janssens says a mortgage can involve more paperwork than getting married, and you should take time to understand a partner's priorities. (Supplied)

"If you don't understand where each other are coming from and what the significance is of that … conflict can start to arise."

In a couple, we can assume the other person is on the same page, but haven't had those up‑front conversations, she says.

Mr Morgan says a couple should have some flexibility during the process, but should be on the "same page" as each other.

"If one person's going in saying, 'it's got to be three bedrooms, it's going to be in the suburbs,' and another person's saying, 'it's got to be a studio and it's got to be on the Yarra', we're not even talking about the same thing," he says.

Before you've bought a home with someone, Ms Janssens also recommends discussing financial backup plans.

It can be "really uncomfortable", but she suggests workshopping how you both plan to pay the mortgage if you decided to have children or one of you became sick, injured or unemployed.

Mr Taylor says it's prudent to think about insurance before you actually go into debt and buy a property.

Income protection insurance could help you afford the mortgage in the event of an illness or injury.

Get (very) familiar with your finances

The Australian Securities and Investments Commission (ASIC)'s Moneysmart website recommends getting your finances sorted.

This includes creating a budget so you are clear on how much you can afford to put towards your deposit.

Mr Taylor says you need a "clear understanding of your money".

The word "budget" can have a negative connotation, but he says a "cashflow plan" includes understanding your lifestyle and where your money goes, recognising expenses such as holidays and eating out.

"There's normally a disconnect between what a bank says you can borrow versus what impact that would have on your lifestyle," Mr Taylor says.

Before you commit to a mortgage, he says it's important to understand what the repayments would mean.

It's common to overestimate what you might be able to save a month and underestimate other expenses, such as annual insurance premiums, council rates and house repairs.

Mr Taylor also suggests "stress testing" how your finances would look if interest rates rose to seven per cent or someone took maternity leave.

You could map this out on a spreadsheet, seek professional advice to lay out how that could work or trial spending less.

"[If] you can't do it or you're not happy with your lifestyle and it sucks … then buying the house at that level and going into that much debt is not suitable."

Ms Janssens says understanding your finances will also give you an opportunity to change any spending habits that might limit your borrowing capacity.

If you're meeting with a professional (such as a bank employee, financial adviser or mortgage broker) you need a good understanding of any debts, the limits of any credit cards you have, your savings and your living expenses (outside of rent), she says.

"A lot of people don't fully understand how much they get paid," Ms Janssens says.

If you'd rather be saving than shopping, but are struggling to switch gears, there are ways to change your habits.

If you're looking toward buying a home, she says to consider any additional payments, such as overtime, bonuses, loading or salary sacrifice arrangements.

And if you're buying a house with a partner or someone else, it's important to be aware of your joint financial position.

Ms Janssen says this isn't always an easy conversation, but it is an important one.

"If you've been managing things separately, there can be a lot of shame around money."

But accounts with buy now, pay later services (such as Afterpay), credit cards, or having declared bankruptcy can all impact your joint mortgage options, she says. So being transparent with each other can help put you in the best possible position.

This article contains general information only. You should consider obtaining independent professional advice in relation to your particular circumstances.

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