Saving A Home Deposit – 5 Essential Tips

April 3rd, 2012 114 Comments
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Couple Saving Their Home Loan DepositSaving a deposit for a new home can be quite stressful, especially if you are trying to save ten or twenty percent of the value of the property. These 5 essential tips should help bring you closer to owning your own home.

With a guarantor you may even qualify for a no deposit home loan! Read on to find out more.

Have as little debt as possible! Before applying for your loan, pay off your debts, or at least have some money left over after each monthly payment which you then can save each and every month.

Banks and lenders do not like their customers paying out large sums of money on other debts. They also make saving your deposit far more difficult to do.

Consolidating all your debts into one monthly payment is a great first step and it may also help you move away from those high interest repayments such as credit card debts. Next, prioritise your repayments over and above your other expenses, other than essentials such as water and electricity. You will pay them off faster and at the same time prove to lenders that you can manage your debt well.

Make a budget for all your expenses. Monthly expenses such as rent, food and utilities bills are a large drain on your finances. Make a budget and calculate exactly how much you must spend each month. Include any current debts such as credit card repayments as mentioned above. Once you have done this it will be far easier to keep track of your spending habits and keeping your living costs down.

Transfer your earnings automatically each month. Once you have taken the above steps you should find you have more money left over at the end of each month. A great way to save a set amount of money each month to have it transfer to a savings account just after you receive your pay.

This should be easy to work out after you have created your monthly budget. Many banks and lenders offer easy to use solutions here. It is also useful to have your savings account NOT connected to a debit or credit card. This way you cannot withdraw the money on a whim.

Remember to factor in Lenders Mortgage Insurance (LMI). Lmi guarantees the lender if you fall into difficulty and cannot service the loan. LMI is a cost not included in the deposit. Therefore for a mortgage where you borrow at least 80% of the property value, you need a 20% deposit and you may need to pay Lenders mortgage insurance. This can come to a few thousand dollars.

As an example; on a $100 000 loan you may pay $1000 insurance. A lender will normally loan you $99 000 for the mortgage and keep the rest . Keep this in mind when considering your deposit. When using a guarantor as security for your loan a lender may waive the requirement for LMI.

If your parents can act as guarantor you are eligible to apply for a no deposit home loan! Your parents can use the value of their property as a guarantee for your loan. Some lenders are willing to waive the requirement for savings due to the extra security their home provides. With a successful application, this will enable you to borrow 100% of the value of the property and possibly even more.

There are other ways you may be eligible for a no deposit home loan. Follow the link to read up on what they are and how you may apply.

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