- Posted 01 Sep
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Taking out a loan to buy a house is a major investment and life commitment. If you want to borrow from any bank in Australia, it’s recommended that you have at least 5% of the purchase price to put down as a deposit. Though there are other ways of getting a loan, but it’s advisable that you have at least this minimum to pay towards the purchase price.
If you’re wondering whether to save up for a deposit to buy a house or pay off all outstanding debts first, some good advice would be take note of your financial position in life and decide accordingly.
Saving for a Deposit vs. Paying Debts Off
If you have less than 5% of the purchase price for your desired house in unsecured debts, it shouldn’t be difficult for you to pay off those debts and save up enough to get a loan.
However, if you have more than 5% of the price of the property in unsecured debts such as personal loans, car loans, credit cards etc., then it’s a good idea to get your ‘ducks in a row’ first before you fully concentrate on saving up for a deposit.
Tips for Getting Finances in Order
Getting your finances in order shouldn’t be difficult, but for most, it can be hard to figure out where to start or what to focus on first. Follow these steps:
- The first step is to start saving up and to stop borrowing any more money. Remember you don’t want to add to the debts you already have. This will only lead to further deterioration of your financial position. If you sincerely want to save enough money to buy a house, you will need to make some sacrifices. These include staving off the urge to buy expensive stuff until you’ve saved up enough to buy the right house for you and your family.
- While saving up will be an ongoing process, paying off debts should be your first priority. Make sure to pay all your credit card bills on time, because defaulting can seriously affect your ability to get approved for a home loan.
- Gradually make payments on your debts. Set out a plan to pay off your high interest debts first and then look at ways you can reduce your outgoings to save more money.
- After you’ve paid your high interest debts off, switch to actively saving to gather the 5% deposit for your home loan.
Some state governments in Australia provide provisions for grant and stamp duty exemption for first homebuyers. If this is applicable to you, talk to one of our team to see how you can get access to these options.
We recommend saving up money in a separate savings account with higher interest rates and fees for withdrawing, since it will deter you from withdrawing money to buy things you don’t really need.
If you’re interested to know more about financial planning for home loans, then talk to our team of experts and find out the best way to go about saving for a deposit.