How to break up with debt and start saving for your dream digs

'Get home loan comfy' series from Urban List.  
This article originally appeared on Urban List and has been republished with full permission.
Urban List logo 'Get home loan comfy' series from Urban List.  

We’ve joined forces with Urban List to bring you their ‘Get home loan comfy’ content series

Urban List has teamed up with property journalist and author Nicole Haddow to take you through the home buying journey and show you how your once-distant dream of owning a home is completely within reach.

From figuring out a realistic deposit to being ruthless with your budget, here’s how to smash your savings goals so you can actually afford to buy your dream digs.

Go hard with a strict budget and power save

We’re big fans of living our best lives seven days a week, but when it comes to saving for a deposit, prepare to reign that in a little. Everyone’s lifestyles and budgets might differ, but if you’re ruthless, you’ll be surprised to see how fast the numbers stack up – especially if you’re doing it with a partner, family, or friend. For Haddow, she admits she spent big in her twenties, so saving for a deposit certainly had its challenges.

“I had $11,000 worth of credit card debt and almost nothing in the bank—I knew I had to turn things around—so, I moved home with my parents when I turned 30,” she explains. Haddow then dug deep doing what she calls a “power-save”—which meant putting away as much as she could during a 12-14-month period.

“During my 'power-save', I worked to a strict budget. After I deducted my essentials like bills, food and rent from how much I made each month, I had about $150 to spend per week on things like makeup, haircuts, coffee, going for dinner or a drink with a friend and the rest would go into savings. It would depend on how I spent that $150 in that week. If my budget allowed it, I’d still brunch, I just couldn’t brunch all the time. I reduced my spending by ditching my gym membership and went running on the streets instead, plus I dyed my peroxide blonde hair back to brown which meant fewer trips to the hairdresser,” she explains.

Haddow also says it’s not just about reducing what you spend, but increasing the money you make if you can. “I also had a side hustle. I wrote freelance articles on top of my job so I had extra money coming through the door.“

Haddow understands that saving for that lump sum might seem like a daunting task, but once she saw the price of entry-level properties and understood what the deposit was, it soon felt like she could pull it off. “The aim was to make a smart purchase that would increase in value so I could then, hopefully, buy something bigger and better in time,” she says.

Helpful tools and guides from Bankwest

Figure out what your deposit percentage will be

In an era where property prices have risen faster than our wages, saving a 20% deposit is the goal but for some first home buyers, a 5% to 10% deposit is the reality—and that’s where Lenders’ Mortgage Insurance (LMI) comes in. LMI is a premium banks charge to protect the risk they take on you when you have a deposit of less than 20%. It’s a buffer in the instance you default—like if you’ve had one too many smashed avos and you’re unable to make your loan repayments.

The amount you’re charged for LMI depends on how small your deposit is and how expensive the property is. “For example, if you have 15% and you want to buy a $400,000 property, your LMI could be a few thousand dollars. If you only have 8% and you want to buy a $600,000 home, it could be a lot more,” explains Haddow. “There are loads of LMI calculators out there to help you do your research and avoid any surprises.”

Helpful tools and guides from Bankwest

Calculate the cost of Lenders’ Mortgage Insurance

Loan to value ratio (LVR) is one of the factors that will impact how much you pay for LMI as it’s a percentage calculated by expressing the value of the property against the amount you need to borrow. “For example, if you have a 10% deposit that means your LVR is 90%, so your LMI will be higher than if you had a 15% deposit because that would mean your LVR would be 85%,” Haddow says. Essentially, the higher your deposit, the lower your LVR and the less you will pay on LMI.

To crack the property market and buy her Melbourne apartment, Haddow had to use Lenders’ Mortgage Insurance because she had a 10% deposit. “I did this because it enabled me to get into the market faster and the cost of the insurance was quickly absorbed by the rise in value,” she explains. That being said, Haddow urges you to weigh up the pros and cons in your desired location. “Decide whether it’s worth buying with a smaller deposit or waiting longer.”

We get it, the home buying journey might seem daunting at first, but it doesn’t have to be. Your first step is to figure out a realistic deposit goal, set a solid budget and stick to it. Get ready, it’s time to put your hard-earned coin into something for your future and Bankwest can help you get there.

Helpful tools from Bankwest

Need help?

Our Home Lending Specialists can talk you through the home buying process and help you with your savings plan.