save-for-deposit

6 Tips To Help You Save Your First Home Deposit

For first home buyers, saving a deposit is a major hurdle to on the road to homeownership. 

So here we've put together 6 tips to encourage you with your deposit saving challenge.

1. Know what you're aiming for.

Knowing how much of a deposit you'll need is one of the first steps to saving for a deposit.  Knowing what you're aiming for helps you to focus on the goal.

The ideal deposit is 20%, so for a $700,000 home, that is $140,000.  Now that is a big number that can be discouraging.  But don't let it put you off.  Luckily, there is the option of low deposit home loans that allow for deposits of 10% or more.

So do some research using these websites, about the prices of houses in your preferred neighbourhoods.

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2. Make a budget

Creating a budget has a couple of key benefits:

  • it helps you to focus on how much you are spending in different areas and work out what you could cut back on.    
  • it confirms how much you can put towards your savings.

An added bonus is that Banks look favourably on applications that include a budget that show a first home buyer can afford the potential loan repayments.

Our picks for budgeting tools are www.sorted.org.nz and Pocketsmith

Once you've worked out how much you have left over after expenses, setup an automatic payment to a savings account.

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3. Make the most of KiwiSaver

KiwiSaver has quickly become the most important method for first home buyers putting together a deposit.  

KiwiSaver Withdrawal

First home buyers that have contributed to KiwiSaver for at least 3 years may be eligible (if in a complying fund) to withdraw all but $1,000 of their KiwiSaver balance to buy their first home. 

First Home Grant

While the house price caps (between $400,000 and $650,000 depending on where in the country you are) makes it hard to access the First Home Grant, it isn't impossible, particularly if you're open to the location of your first home.

The First Home Grant could give you up to $10,000 towards your deposit, provided you meet certain criteria.  More information about the eligibility criteria here.

Tips for making the most of KiwiSaver:

  • ensure you contribute at least $1,042.86 for the calendar year ending 30th of June to make sure you receive the maximum Government contribution of $521.43.
  • if you can afford to, boost your wage contributions to 8% or consider additional voluntary contributions.
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4. Pay down debts

We are often amazed at the amount of debt that some first home buyers have.  With all the challenges first home buyers have - high house prices and lending restrictions - reducing your debt is one thing you can do something about.

This article here helps to explain the effect debt has on the amount the Bank is likely to lend you.  So use it as motivation to lower your debt.

It should be mentioned that Banks do have allowance for debt (currently about $10,000 - $15,000).  However, think about what your bigger hurdle is; not enough deposit or your income being eaten up by credit card or personal loan interest payments.  A mortgage advisor can help you answer this. 

Tip: Money Talk is a budgeting organisation that offers free advice about how to get out of debt and help you get your savings on track.

5. Review your bank deposit rates.

With current bank deposit rates reflected by record low Offical Cash Rate, you're currently getting very little for your money sitting in the Bank.  So a look at where you put your savings could mean getting to your deposit target quicker.

From the security of term deposits, extra contributions to KiwiSaver to the more riskier options of shares or investment funds, there could be more fruitful places to put any deposit savings.

Please note, this is not personalised advice, you should always seek the advice of a registered financial advisor.

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6. Put your savings out of reach

And don't be tempted.  You've done all the hard work in amassing a reasonable level of savings.  Don't get tempted to spend it...

Set up a separate bank account that you don't have easy access to and possibly includes a 'bonus interest rate' for not withdrawing money.

Having said this, if you really need to buy something, like a new car or washing machine, pay cash for it.  avoid taking out a loan or hire purchasing it.  Purchases this way can add up very quickly and see you drifting away from your goal of owning your own home.

 

Get the ball rolling with a plan for homeownership...