Buying your first home should be an exciting process – and when you’re in a position to make an offer, it is.  However, getting approval for finance can be challenging, especially if you’re trying to save the 20 per cent deposit that many lenders ask for.  And saving that 20 per cent for a deposit is tough. In Melbourne, the average house price was $974,397, while in Sydney, it was $1.3m.

As you’d imagine, in regional Victoria, prices aren’t as high – in Geelong, the average price is $694,000, while in Warrnambool and the South West, it’s $405,000.

Regardless, whether you’re trying to save $80,000 or $260,000, getting that money together is a near-impossible task for many people who’ve still got all of the regular outgoings of day-to-day life; rent, groceries, medical and so on.

“It can be a real struggle,” says Ryan Fennell, Partner and Adviser at Fennell West.  “It can be overwhelming, and it can even put people off having a conversation about securing home finance because they see it as a hopeless task.’

However, it turns out there are several options to help you save more quickly – and if you have parents who are happy to back your purchase, you may not even need any deposit at all.

Option 1: First Home Super Saver Scheme

If you want to speed up your home deposit savings

The first home super saver scheme is an Australian Government initiative to reduce pressure on housing affordability, and it enables you to save money for purchase inside your super fund. And because of the tax concessions, you can reach your deposit faster than before.

Savers can put up to $15,000 per year into super, up to $30,000 in total, to go towards their first home. This money must come from voluntary contributions or salary sacrifice, and it has to be used to purchase a home.

“If your average tax rate is 30 per cent, you can save $100 in your super, whereas if you put it in a regular savings account, you’d only have $70. It can help you get to your goal a little bit quicker,” says Ryan.

In addition, savers will benefit from the – hopefully – higher interest rates achieved by their super fund than on offer from their bank.

Using this scheme needs a bit of strategy around it. You can only make one request to withdraw the money, and it must go towards a property purchase within 12 months of the request. If not, you’ve just topped up your super balance.

Another benefit of saving this way is the money is untouchable apart from the purpose you’re saving for.

“We talk a lot to clients about having savings accounts that are out of sight,” says Ryan. “If you need to log on somewhere else or wait 24 hours to receive funds, you’re likely to think twice about dipping in.”

Option 2: Lender’s mortgage insurance

If you have a small home deposit and don’t mind paying a bit more in repayments

Many lenders will accept applications from people who have less than 20 per cent deposit – some specify a minimum of 10 per cent, others will consider less than that.

Usually, however, if you’re borrowing more than 80 per cent of the property value, you’ll have to pay lender’s mortgage insurance (LMI), which gives the bank some security if you default on the mortgage.

On a $500,000 property in Victoria, with a deposit of $25,000, LMI would be around $15-$16,000 – which is added to the value and term of your home loan.

However, there is currently a government-backed First Home Loan Deposit Scheme that enables 27 participating lenders to wave LMI fees for first home buyers as the government guarantees up to 15 per cent of the finance.

For the 2021-22 financial year, there are 10,000 places available as part of the government’s ‘New Home Guarantee’.

However, the kicker is, you can’t apply for it until you’ve got the contract on your new purchase and you’re ready to go.

“It’s not something you can hang your hat on, but it is a great scheme and can be something of an added bonus at the end of the process,” says Ryan.

Option 3: Parental guarantor

If your parents have equity in their home, you may not need a deposit at all

If your parents own their own home and are willing to help you get into your first home, they can do so without costing them a cent.  By acting as a guarantor, parents can help secure finance without you having saved a deposit by essentially guaranteeing a portion of the mortgage against their property.

“Everyone has to be comfortable with this as if you default on your mortgage, the lender will come knocking on your parents’ door,” says Ryan. “However, this is a great way of being able to get onto the property ladder without having to save a sizable deposit.”

Of course, you still need to be able to show the lender you’re managing your finances well, have some money in the bank and pass the relevant credit checks – they’re not going to lend money to someone who’s got no visible way of making the repayments – but the parental guarantee enables you to buy a home without putting a cent down towards it.

Getting your finances in order

Buying your first home is an exciting time, and you need a smart strategy to get you there faster. From savings tactics to the multiple options available to secure finance for your purchase, the team at Fennell West is here to guide you every step of the way.

Don’t forget, after you’ve purchased the property, there’s always furniture to buy, decorations to be done, and alterations to be made. So you need to make sure your overall planning is taking that into account, as well as the multitude of other expenses that you incur when buying a property and moving house.

Having an expert team beside you will give you the confidence you’re heading in the right direction, keep you accountable to your goals, and help you secure the most appropriate finance quickly and easily.

Visit the Fennell West website or email the team, or call 03 5557 3355.