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.