The Rental Dilemma: How to Save for a House Deposit While Renting

When saving for a house, getting the money together for a deposit is often the hardest part. For many renters, it’s easy to feel discouraged when so much of your paycheck goes towards rent instead of saving for your own home. On top of this, property prices are constantly fluctuating. A recent report stated that the ACT has the second-highest residential property prices among Australian cities. With news like this, it can feel tough to get ahead. 

But homeownership is an achievable goal with the right mindset, strategic planning, and disciplined budgeting. In this article, we’ll discuss some practical tips to help renters save for a deposit.

What is a Deposit?

A home loan deposit is the amount you pay upfront when buying property. This may be as little as 5% — in conjunction with available government schemes (more on this later) — but usually, we recommend planning to save a deposit of 20% of the full value of the house. Why? Paying the full 20% helps borrowers avoid Lenders Mortgage Insurance (LMI). 

Understanding Lenders Mortgage Insurance

LMI is insurance your lender takes out to insure itself against the risk of non-repayment. The LMI cost is passed on to you as the borrower. A 20% deposit avoids the legal requirement of an LMI. If your deposit is below 20%, the lender will take out LMI. While 20% might seem like a lot, through consistent savings, you can achieve this goal.

Practical Tips for Saving for a House Deposit

Step 1: Set Clear Savings Goals 

The first step to saving for a house deposit is setting clear goals. Research property prices in your area. Market conditions and inflation can affect this amount. Real estate agents in Canberra can help you understand the market. Use the Independent website as a guide for pricing. Calculate a deposit amount based on property prices. 

Once you have a target amount for the deposit, break it into short-term goals, such as monthly or quarterly savings. 

Tip: Don’t forget to factor in additional costs like stamp duty, legal fees, and moving expenses on top of the purchase amount.

Step 2: Establish a Realistic Budget

Once you’ve established your savings goal, it’s time to look at your budget, essential for consistent savings. Start by tracking your income and expenses. Identify and cut non-essential expenses. For example, redirect money spent on dining out or subscriptions toward your deposit fund. 

Step 3: Evaluate Your Rental Expenses

Support your savings goal by evaluating your rental costs. Negotiate your rent or downsize. Move to a smaller property or look into moving to a cheaper area to help you save money. Consider the trade-offs of having a smaller home versus how it can help you grow your savings. 

Step 4: Leverage Financial Tools and Accounts

Look for savings accounts with competitive interest rates, minimal fees, and features like bonus interest for regular deposits. Start by opening a dedicated high-interest savings account to separate your house deposit from everyday spending. By setting up automated payments to the savings account, you are less tempted to spend. You don’t see the money while consistently growing your savings.

Step 5: Use Government Assistance Programs

Step 6: Maintain and Improve Your Credit Health

Your credit score is based on your borrowing and repayment history. The higher your credit score, the more likely you are to have your request for loans accepted. 

Borrowers with a high credit score can access lower interest rates. Here are some tips to improve your credit score:

• Regularly review your credit report 
• Focus on paying down existing debts
• Avoid taking on new debts
• Ensure timely payments on bills and credit cards

Step 7: Seek Professional Financial Advice

Consult experts like a financial advisor and a mortgage broker to get tailored savings strategies. A financial advisor helps you build a strategy that aligns with your savings goals. A mortgage broker specialises in helping you find the best mortgage products for your situation. Their role is to match you with a lender that offers favourable terms.

Conclusion: Starting Your Homeownership Journey

The road to a deposit looks different for everyone. While savings can seem out of reach, you can use this plan to make progress towards your dream of owning a home. Start planning today!