Opinion
You’ve finally saved a house deposit. Now what?
Dominic Powell
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You’ve done it. You’ve scrounged and saved and cut back on avocados or toast or beans or whatever it is you’re supposed to, and you’ve finally got enough in your bank account for a house deposit. Amazing, I’m so proud of you. Now what?
Given the deposit on a median house in Melbourne is about $200,000 and in Sydney it’s $320,000, this is no mean feat, though realistically, first home buyers will probably be aiming for a more affordable apartment or unit, making their deposits more in the $100,000 to $150,000 range.
Once you save a house deposit it can be tempting to rush out and buy, but it can pay to sit tight.Credit: Aresna Villanueva
Regardless, this is still a huge chunk of change that will take the average earner five to six years to save up, and taking the plunge into the property market is one of the biggest investments you’ll probably ever make. On all counts, this is a pretty big deal.
What’s the problem?
So while you might feel like beelining for your closest weekend auction (especially with Australia’s seemingly always-rising house prices), it can be prudent to take your time. Some people spend months, sometimes years searching before the right place comes along, and even once you’re successful with your purchase, it’s usually at least 30 days until you actually get the keys.
What you can do about it
So if you’ve saved up for a deposit, what should you do next?
Make your money make money: It’s likely (or at least I hope it is) that while you’ve been saving for your deposit, your funds have been accruing interest in a savings account with a solid interest rate. But now you’ve hit your 20 per cent threshhold, it may be prudent to move those funds into something where you could get a little more bang for your buck. Cara Graham, principal wealth adviser at the Wealth Designers says, depending on your timeframe and what options are available, putting your deposit-to-be into a term deposit could be sensible.
“If a term deposit offers a higher rate, and you’re confident you won’t need the funds until it matures, it can be a good option,” she says. “High-interest savings accounts are more flexible as you can access the funds on short notice. However, if you’re buying a house, you’ll typically have time before settlement to organise your funds.” A $150,000 deposit in a six-month term deposit at 5.1 per cent will net you $7600, more than enough to cover conveyancing costs and maybe some low-level renos.
Think carefully: While your deposit is ticking away earning you some extra coin, it’s time to really start thinking about where you might buy. I’m sure you’ve already considered this while you’ve been saving, but mortgage broker Rebecca Jarrett-Dalton recommends getting really into it, noting that the most common reason people sell after purchasing is because they ended up buying in the wrong location.
“[People] buy in suburb A, but find themselves driving to suburb B too often and end up moving there,” she says. “Changeover costs would generally be upwards of $50,000 and more. If the kids’ sport, lessons and activities are all located a distance from where you’re looking, it can grow tiresome quickly.” Jarrett-Dalton suggests doing “the run” home at peak hour in your desired suburb to see what traffic is like and your tolerance for it. She also recommends making a physical checklist of all the things your new home must have – like a dishwasher or double-glazed windows – to avoid buying something you don’t love.
Get pre-approval: All right, you’ve got your money, and you know what you want. Now it’s time to make sure the bank will lend you what you need. It may be tempting to just go with whatever bank you’re already with, but shopping around here can make a massive difference to your borrowing capacity or your repayments. Sally Tindall, data insights director at Canstar, says a mortgage broker can be a big help here as they will know the lay of the land, but she recommends taking some time to do research yourself beforehand. Typically, a pre-approval will last three to six months, after which you’ll need to apply to your lender again.
Test run your repayments: Once you know where you want to buy, and how much the bank will lend you, put it to the test. If your repayments will be $1500 a fortnight, and you’re currently saving $600 a week for rent, try raising the amount you’re saving to match. This will give you a good sense of if you’ll be able to afford your repayments when you buy, and give you time to either save more, or rethink what you’ll purchase if needed.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.