A little known loophole could get you $50,000 closer to a new home. Picture: NCA NewsWire/ Gaye Gerard
It’s no secret the property market is a fast moving beast. So when it comes to saving a deposit and buying your first home, chances are, you feel like you’re in a losing race.
But there are ways to get into your first home sooner, says Andrew Rennie.
The former News Corp property journalist and mortgage broker at Helping Hand Finance said it’s important to be strategic from day one and consider all the options available to you.
SAVING A DEPOSIT
Maximising your ability to save is key for cracking the market as soon as possible – which is why you may like to consider the Government’s First Home Super Saver scheme (FHSS), Rennie said.
This allows eligible first home buyers to stash away savings in their superannuation by making additional voluntary contributions, up to $15,000 per year. The contributions get taxed at 15 per cent, so if you are in a higher tax bracket, you may be able to save more money by reducing the tax you pay on that portion of your income.
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Your new home could be closer than you think. Picture: Julian Andrews
You can then apply to release up to $50,000 saved in voluntary contributions including the associated earnings made.
This amount includes all of the after-tax contributions you put in and up to 85 per cent of the pre-tax, or salary sacrifice, contributions made.
The First Home Guarantee Scheme is another option worth considering since it allows you to borrow up to 95 per cent of the value of the property, Rennie said.
“Instead of trying to save to get 20 per cent, you save to get 5 per cent, and that can get you into a home sooner,” he said.
MyBudget director Tammy Barton said setting a formal savings goal helps to keep you on track.
“Break down your deposit goal into monthly targets,” she said. “It might feel like a marathon, but every bit counts.”
She suggests setting up a direct debit into a high-interest savings account each month so there is no backing out of it.
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Founder and director of MyBudget Tammy Barton says formal savings goals can keep you on track. Picture: Sarah Reed
RENTVESTING
Rentvesting is another strategy to consider, Rennie said.
Buyers agent and author of Rethink Property Investing Scott O’Neill said he bought about 19 properties as a rentvester before buying his first home, using the equity he earned to form his deposit.
“You’ve got to be location agnostic,” he said, adding that it’s important to buy in a good growth market that works with your budget.
“Also, make sure you get a good enough yield. Especially with these higher interest rates, you don’t want to be buying a highly negatively geared property that puts you back $20,000 a year.”
GETTING A LOAN
Being approved for finance is another barrier first homebuyers often face, but knowing the different policies of lenders can be a gamechanger, Rennie said.
Take Lenders Mortgage Insurance (LMI), for example. While most lenders charge this if the borrower’s deposit size is less than 20 per cent, there are lenders who waive LMI for specific professions, he said.
And on the subject of LMI, while it’s seen as an extra cost most borrowers don’t want to pay, it shouldn’t be discounted entirely if it can help you get into a home sooner – especially since property prices could go up more than the cost of LMI if you spend a few extra years saving a 20 per cent deposit, Rennie said.
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Buying a home with a sibling or friend is another way you may be able to enter the game sooner, though it could become tricky to untangle your finances further down the track. Using your parents as guarantors could also help your chances at getting a loan, but it’s important to check the legal and financial ramifications before doing so, he said.
TOP SAVING STRATEGIES
MyBudget director Tammy Barton said drawing up a budget is the best place to start when saving for a home deposit. Once you’ve done that, you may want to consider maximising your savings capacity with the following tips.
Cut back on luxuries – Take a hard look at your expenses and consider stripping back your subscriptions and limiting what you spend on eating out
Compare the market – Don’t fall victim to loyalty tax and shop around for all your essential services like energy, gas, internet and health insurance
Automate your savings – Commit to the amount you will save each monthly and set up a direct debit into a high interest account
Track your budget – Review your budget regularly and make adjustments as needed
Get a side hustle – Find ways to boost your income so you can save more by getting a second job or joining the gig economy
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