Saving for that all-important deposit can be tough, but here are three winning tips to help set you on your way to home ownership.

1). Beat the credit monster

Credit card debt, unpaid bills and personal loan repayments can be major setbacks to your saving efforts. As part of your saving strategy get these debts paid off. Start by paying off debts with the highest interest rate- typically your credit card. If you can’t pay it off in one lump sum, ensure that you pay more than the minimum monthly repayment. You’ll not only slash your debt; you’ll also have extra funds to channel into other debt commitments or savings.

2. Track your spending

Setting a financial goal will make it much easier to plan and save successfully. Make a conscious effort to track your expenses so you can see where your money’s going and cut back where you can. Small sacrifices, such as taking the bus instead of Uber, cutting back on buying a coffee or bringing your lunch to work can also go a long way towards helping you save.

3. Make your savings work harder for you

Making cutbacks on your lifestyle is one thing but putting that money to use is another. Remove the temptation to spend your savings by arranging a set amount to be taken out of your pay each month and put directly into a savings account. Shop around, and seek a high interest rate savings account to get the best returns.

LMI is an insurance for the lender in case you default against your loan. The insurance actually doesn't cover yourself if you default so be careful not to confuse this with mortgage insurance. LMI usually applies when you need to borrow more than 80% of the value of the property. The higher the percentage you borrow, the higher the insurance amount will be. While LMI can scare some people off buying a property as they want to avoid paying this fee, there are situations where it can be worthwhile.

Example:

An example of this is buying a median house in Liverpool back in 2014 which would have set you back $580k. If you were only able to save 10% and there were no other options for the other 10%, then the LMI would have been approximately $15k. Now fast forward to 2016 and the median price is now $706k. So instead of needing another year or two to save for that 20% deposit and trying to buy a place at $706k, you were able to buy the place for a total $595k (580k purchase price + 15k LMI) and seen your equity grow by more than $100k.

The choices you make when taking out a mortgage have long lasting implications, so you need to approach borrowing with a healthy attitude. Your mortgage broker will help assess your situation and work with the banks to determine your affordability to estimate a maximum borrowing amount. This doesn’t mean you have to borrow to your maximum capacity. You need to be comfortable with your monthly repayment amount. A good way to start is measuring your income against all your expenses, including potential mortgage repayments. While everyone’s circumstances and expenses are different, a good rule of thumb is that no more than 35% of your gross monthly income should go towards servicing your mortgage. Things you should consider:

How much debt can i handle?

Don’t over commit. Borrowing too much can be a big strain on your personal life and lifestyle. Think about what aspect of your lifestyle you may be willing to give up, and those that you can’t.

Am i being realistic?

Houses are like stepping stones- it’s probably best to start with something affordable and move towards your dream home as your personal earning capacity and equity grows.

What are my plans?

Think about what the future holds- both personally and financially. Are you a one or two-income household and is this likely to change in the future?

What about the changes to interest rates?

Consider how any rate rise will impact on your ability to make repayments and factor that in when setting your borrowing limits. And don’t forget, there are added extras when purchasing a property, for example, stamp duty, property inspection reports, solicitor etc as well as ongoing commitments including council rates, possible strata cost and utility bills. Consider these costs when determining how much you can borrow.

If you have a 5% deposit and need another 15% to avoid LMI, one option is to use a guarantor. This is where another party (usually parents) offers their property as security in case you are unable to repay your loan. While there is definitely a risk for the guarantor as they would be liable for your home loan as well. Part of the lenders requirements are to have the guarantors seek independent legal and financial advice before becoming a guarantor. Lenders will also normally exhaust all other avenues before going down the path of recouping funds from the guarantor.

Buying your first home can be stressful and if you’re not fully prepared, it can prove to be a time of great confusion and hard work- especially when it comes to finance. Speaking to a mortgage broker is a good first step to help you plan and prepare.

Mortgage Brokers will start with reviewing all your needs

A mortgage broker will take the time to understand your needs, discuss your financial circumstances and identify your loan requirements. They will discuss your property goals, factoring in your loan requirements in light of your lifestyle, job, family and other aspects. They will also discuss the type of documents needed to assist you to make a loan application- such as pay slips, tax returns, and personal bank statements. Once they have a clear understanding of your financial situation and goals, your mortgage broker will be able to advise you on your home loan options.

Unlike banks, your mortgage broker will compare all your loan options.

Mortgage brokers work with a number of lenders and will be able to compare hundreds of loans to find the loan products that meet your needs. They will give you a broad view of your lending options but will also provide an analysis on important specifics of the loan that have been identified as meeting your needs. From there you can then make an informed decision on the bank and loan product you like to select.

Mortgage brokers will manage your application from start to finish.

Once you have decided on your loan, your mortgage broker will complete all the necessary paperwork to get the loan process underway. Time frames vary for different lenders and your mortgage broker will provide you with ongoing updates on your application process and correspond with the lender on your behalf.

Mortgage brokers do not charge a fee for their service.

Unlike other professional services, using a mortgage broker does not cost you anything. Mortgage brokers are paid by the lender to help you find, manage and process your home loan. Think of them like your personal relationship manager to the banks. You may find that some mortgage brokers have special terms in place where they will ask you to pay a penalty if you decide to change your home loan within 1-2 years. At Simple Easy Finance, our goal is to ensure our clients are always getting the best deal, our regular 6-12month reviews ensure you are always on the best deal possible and we will not charge any penalty if you decide to change your home loan.

The First Home Buyers Assistance scheme is a NSW Government initiative which provides exemptions or concessions on transfer duty for eligible NSW first home buyers. This includes vacant land on which you intend to build your first home. The First Home Buyers Assistance scheme provides eligible purchasers with exemptions on transfer duty on new and existing homes valued up to $650,000 and concessions on duty for new and existing homes valued between $650,000 and $800,000. Find out more information here.