How to save for a home loan deposit

Saving a home loan deposit is the first step towards owning your own home and a major financial milestone. But in a competitive housing market, it can take a lot of sacrifice and determination to build up the deposit you need.

If you have the means, saving a deposit of at least 20 per cent will not only allow you to avoid substantial Lender’s Mortgage Insurance (LMI) fees, but also give you confidence that you can save and make repayments on your home loan. Plus, having a 20 per cent deposit will generally give you a bigger pool of lenders to choose from, as many require a maximum loan-to-value ratio of 80 per cent.

On the other hand, if you are looking to get your foot on the property ladder as soon as possible, most borrowers will generally need to have saved at least 5 to 10 per cent of the purchase price as a deposit. Any deposit less than 20 per cent will typically require you to pay LMI, unless you are eligible for a government grant or subsidy, such as the First Home Loan Deposit Scheme. So, that’s another cost to keep in mind when saving for a home.

How can I save my deposit?

It can be overwhelming to even consider saving such a substantial sum, but if you make small, achievable goals, you could be well on your way before you know it. And don’t worry, we’re not about to tell you to skip your morning coffee or avocado toast.

Take a look at how you spend

Often the best place to start is by assessing your existing budget. Where are you spending your money, what’s important to you, and what could you cut back on? Maybe your gym membership is important to you for the sake of your physical and mental health, and you use it regularly enough to justify it. But a habit of ordering Uber Eats three nights a week is something that you could reasonably dial back.

Regularly revisiting your spending patterns while saving a home loan deposit could keep you from mindlessly slipping back into old habits and help you reach your goal faster. 

Put money aside on payday

Whether you set up an automatic transfer or set a reminder to do it manually, putting money into your savings account the day you get paid can help you avoid chipping into what should be your home loan deposit.

It could also be worth divvying up the rest of your paycheck into different categories to make it easier to stick to your budget and reduce the temptation to access your savings before the end of the pay cycle. 

Calculate how much you can afford to borrow

Once you feel you’ve got more of a handle on your lifestyle expenses, it’s worth calculating how much you can afford to borrow with a home loan so you can set a more concrete savings goal. RateCity’s borrowing power calculator allows you to do just this, when you enter a few of your details including your income and expenses.

Consider the other fees

Keep in mind, a deposit likely isn’t the only thing you’ll need to pay for when you take out a home loan. Fees for your loan application and settlement, valuation of the property, LMI, and stamp duty (if applicable), can really add up. Be prepared ahead of time by doing your research and factoring these costs into your savings goal.

You might like to use RateCity’s stamp duty calculator to estimate your potential stamp duty, mortgage registration and transfer costs.

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