Good day. My name is Ben Everingham and I’m the director here at Pumped on Property. And in today’s video, we’re going to talk about how to save a deposit for a house in a year.
Good day. My name’s Ben. In today’s video it’s going to be action packed with tips on how you can save that deposit for your first investment property or for your home faster. If this is the first time listening to my videos, please subscribe to our channel. If you’ve got any questions or comments, please put them below and I’ll do my best to respond. If you like the video, it would be great for you to show some love. In today’s video we’re going to talk about seven or eight things that are really meaningful, to show you how to save for an investment property or a home faster.
The first tip is to understand your borrowing capacity. Sorry, I just stopped for a second there. The first thing is to understand your borrowing capacity, which means sitting down with a bank manager or a mortgage broker and really understanding that if you do have a deposit, based on your current income, your current debt and your total situation, what you could potentially borrow. So if you’re earning $50,000 a year, theoretically, in theory, this is just a theoretical conversation, you might be able to borrow $200,000 or $300,000. And if you’re earning $100,000 a year and you’re partner’s earning $50,000 a year, you might be able to borrow significantly more than that. So it’s important to understand your borrowing capacity, so that you know how much you need to save and what you can buy at the end of the day.
So, the second thing is to identify what your purchase price is. And I don’t think enough investors or first time buyers do this early enough. Because to buy an investment property, you obviously need to save a certain amount of money. It’s really important to understand how much you’re going to spend on that property. If you’re going to spend $400,000 to buy your own home or an investment property then you’re probably going to need somewhere between 10% and 20% of that just for the deposit to pay for the bank to actually get the money that you need to buy the property. So, sit down with your partner or sit on your own, identify where you want to buy, what the average price is there and then go have that conversation with your mortgage broker or your bank manager and go, “I want to buy a $400,000 property. I know that I can put down a 10% or a 20% deposit. How much am I going to need in total to do that?”
The third tip is to identify how much you’re going to put down. So, there’s a few parts to this. First is the deposit. Again, most banks in Australia at the moment want between a 10% and a 20% deposit. In the past, banks have only wanted 5% deposits or no deposits, but at the moment, lending is a little bit tighter than it has been previously. So, identifying how much you’re going to put down is really important with the deposit side of things. So, I personally like to put down a 20% deposit, but for most of you that are just getting started sometimes the 10% deposit will get you over the line with a bank.
Now, there’s other costs associated with buying a property, so let’s say that you buy a $400,000 property, a 10% deposit would mean putting down $40,000. A 20% deposit would mean putting done $80,000. But there’s extra costs on top of that, so if you only put down a small deposit, there’s something lender’s mortgage insurance, which the bank will charge you. Sometimes you’ve got to pay for that out of your own pocket. Sometimes you’ve got to … you can add that to the loan. Your mortgage broker or bank manager will be able to talk you through that and how much that will be. You’ve also got the costs of your solicitor, your building and pest inspector, any maintenance issues with the property when you buy it, as well as stamp duty, which if you’re a first time buyer looking to move into it, sometimes in different parts of Australia there’s a concession on stamp duty, but most of the time if you’ve bought a property in the past particularly, you’ve got to pay that stamp duty. So that can be a pretty hefty chunk as well.
What I generally say as a rule of thumb is that if the purchase price is $400,000 or any price then you can take a 6% on top of that is what you’re going to need to settle or buy the property. So, that will include the stamp duty, the solicitor, sometimes the lender’s mortgage insurance and everything else there. So, if you set a goal of a $400,000 property and you get your $40,000 and you’re like, “Yes. I’m ready to go”, then you go talk to the bank and you’ll be still needing about an extra $20,000 on top of that to make it happen. So, really important to know that now so that you can get your budget right.
That leads me into the fourth thing, which is understanding your weekly expenses or sitting down … I hate the B word, but sitting down and doing a budget and going, “Okay. Together we’re earning $100,000, $150,000 a year, $50,000 a year. My expenses are this amount and our ability to save is this amount.” So, from budget, I want you to understand what you’re fixed expenses are. You can work on reducing those and you can work on actually putting a savings target in place. So, the key there is to be consistent and it’s to be realistic. If you’re neither of those things, that’s probably why you haven’t got that deposit together now. It’s really about identifying the fixed costs in your life, identifying what’s coming in, focusing on increasing what’s coming if you possibly can, working a secondary job is what I did for a lot of years to help myself get ahead or focusing on my job so that I could get an extra income or bringing my partner’s income into the table so that we could save quicker. But these things are all really, really important to understand.
The last thing that I wanted to focus is just this concept of being realistic and not beating yourself up too much if you can’t do it in a year. When I was 24 years of age and working in my first job, well I think I was earning $50,000 a year. And in that first year I was able to save enough of a deposit to go buy myself a $360,000 unit in a suburb called Miranda, which is the South side of Sydney. So, at that time obviously property prices were a fair bit lower. There was also a bit of a stamp duty concession and the banks were a looker for less deposits, which made it a lot easier for me to enter the market.
But the reality is, it can definitely still be done now. So, if you’ve got a realistic target, you’re consistent with your plan, you focus on reducing the fixed costs in your life and increasing your income, that can be a great place to start. My wife and I have moved home a number of times when we were first getting started to save some money. Or we moved out of expensive places or renting into cheaper places. We sold cars. We reduced the wiped out credit cards. We went without a few things just for that period of time to save the deposit. And then as soon as we’ve got that deposit together, we improved our lifestyle. We celebrated what we’d done until we were ready to go do it again.
So, I hope you got some tips out of today’s video. Saving a deposit in a 12 month period is achievable but can be very tough. And one of the major things to remember is if you are on $50,000, understand that your borrowing capacity is going to be limited. You might not have to save a huge amount of money. You may just have to lower your expectations around your purchase price or sometimes, sit on the fence for a little bit longer. Save that extra money so that you can buy that high quality property in a higher quality area. So, if you haven’t already, subscribed to our channel. Can’t wait to talk further with you and share some more videos with you. Thank you so much for your time.