What To Do When You Want To Save Up For A Home

For a long time, Australia's housing prices continued to climb at a phenomenal rate, putting home ownership out of reach for a large number of people. But with recent signs that the housing boom is coming to an end, perhaps it's time to think about getting into the property market. You'll need some money to get you started and we have some pointers on how to save up for your dream home.

Hands cradling house image from Shutterstock

When saving up to invest in a property, the first step is to understand what you'll be getting yourself into. It's not as simple as looking at the price of a home that is on sale, throwing down a deposit and getting a loan from the bank. There are extra costs involved when it comes to buying a place such as stamp duty, loan fees as well as associated costs for building inspections, pest control and strata inspections.

"If you borrow over 80 per cent of the value of the home, you'll have to pay Lenders Mortgage Insurance (MLI), and that's with most lenders," MLC Advice director and certified financial planner Renee Hush told Lifehacker Australia. "The higher you borrow, the more the fee will be."

So while most people think buying a modest property will set them back around $500,000, it's closer to $600,000 when you factoring in the extra costs, she said.

Once you figure out a realistic figure that you'll be paying for a home, that'll be your target for saving up a deposit. If you don't mind paying the MLI, you can invest your money into a property once you have around five per cent of the purchase price but ideally you'll want to aim for over 20 per cent.

For those who are younger and have just entered the workforce, you'll likely be getting the money for the deposit from your salary. As always, starting early is the key to saving money for big purchases. Hush advises to start putting money aside right from your first pay packet and place it in an investment fund.

"Our parents just put money in the bank, and you can't just do that anymore," she said. "Saving $100,000 in Sydney, for example, will take you a long time, so it's about thinking outside the square to make the most out of the money you have."

If the reason you're looking to buy a home is because you want some assets that you can cash in on later in life, you might want to consider other options, Hush said.

"Maybe don't invest in a property and invest in a share portfolio instead," she said. "In the long run, they can perform better than investing in properties so it's worthwhile looking outside the box and find something that suits you."

You should also consider the accessibility of the money you save. Hush recommends against getting any mobile apps from your financial institution of choice that allows you to easily access the money. The temptation to chip away at the available funds may prove too much and you'll hamper your chances of reaching your long-term savings goal.


    I've been thinking for a while that I might be a property in north queensland and put it on airbnb, would that be taxed differently than a house in Brisbane that I would live in?

    Either way it would be a first property for my wife and I

    I was also told by a surveyor that if you have good life insurance you dont need MLI

      Personally, I think MLI is a little overstated a lot of the time. 20% is a nice goal, but how long does it take to get there? Not everyone can put away $1000 a fortnight, but would be fine paying off a mortgage. I know I was in that position myself.

      I personally went completely against the grain. I borrowed 100% (not really an option today, but 5% is easier than 20%), accepted the LMI, and just paid what I needed to. Rates were on the way up at the time as well (I bought 2007), peaking at over double the current rates. I kept paying at that peak.

      Fast forward to now, and I'm ~5 years from paying the place off. If I'd tried to get a deposit together, I never would have bought. I needed to pay rent, and that hit each fortnight didnt leave enough to practically save enough to keep up. Not without making sacrifices that were unacceptable.

      Instead, I accepted a higher rate, plus LMI, then after my place was worth $50k more, renegotiated to a more standard rate.

      Those extra costs like LMI are only a burden for the first 12-24 months, after which your personal situation should have improved to the point you dont feel it.

      I was also told by a surveyor that if you have good life insurance you dont need MLI

      No, this is wrong. MLI is Mortgage Lenders Insurance - it's insurance for your bank, not insurance for you. ... you just pay for it.

      When a bank lends you more than 80% of the value of the asset, they slug you with an extra fee (in the order of $20,000) because you represent a higher risk of default.

      The only way to avoid it is to either have 20% saved, or get a separate loan for that 20% and keep it a secret from the bank.

    We have had a unit for 7 years and it is still worth $20,000 less that it was when we bought it. I think you are better off with a term deposit.

      That just sounds like you made a poor investment.
      I bought a unit and have had it for 6 years, and it is nearing double what I paid.

    There are still some calculations that are necessary to be done on top of the price tag of any house that we see in the market. This process goes both ways in the residential as well as the commercial market as well. Whether it is just a comfortable abode or a self storage facility, it is best to get a realtor to draw up some calculations so that you can start your savings as soon as possible.

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