Entering into the Real Estate market and preparing to buy your first home can seem daunting. The more cash you have upfront, the more it’ll save you in the long term. As a rule of thumb, it’s recommended to have at least 10% of your purchase price saved. But with average house prices in Australia currently fetching in excess of $600,000, saving a cheeky $60,000 upfront can be a big ask.
So, what’s the secret to getting your foot in the door of your very first home? Well, we’ve called in finance expert Leonie and her team from Wealthology to share their wisdom and knowledge. Wealthology are investment gurus, they support their clients to achieve financial security.
Leonie tells us “the key to building up a deposit is, quite simply, to start saving as much as you can as soon as you can. The bigger the deposit you can stump up, the lower the risk you will be considered – giving you access to a wider and cheaper raft of mortgage deals.”
How much of a deposit do you need to save to buy your first home?
The average house price in Australia is around $630,000. To buy a property worth that sum, you’d need to save about $31,500 which would give you the minimum 5% required by lenders.
Putting down 10% would give you access to cheaper deals and would require you to save $63,000. And depending where you are buying will depend whether house prices are higher or lower.
Don’t panic though as, wherever decide to buy your first home, if you can only get your hands on the minimum 5%.
What’s the best type of bank account to store my savings in?
So where should you stash your deposit cash? The best home for it will depend on exactly when you are planning to get on the property ladder.
1. Regular savings accounts
For example, if you are saving over a short period of time, say a year, you might want to think about a regular savings account. Regular savings accounts tend to offer the best rates of interest as you are agreeing to lock in your cash. On the flipside though, you will often need to have a current account with the provider before you can apply.
2.Easy access accounts
If you’ve got less than a year to save, you’ll need to go for an easy access account. These are the most flexible accounts as they allow you to get your hands on your cash – and add to it – whenever you need to. However, because of this fact, the rate of interest you earn will be pretty low.
Medium to longer-term savings
If you’re looking to buy your first home and you’re wanting to get onto the property ladder will need to save for several years in order to build up the deposit you’ll need. So, you will need to find a savings account to suit your needs.
A great place to start is with a cash Individual Savings Account (ISA), as the interest you receive will be free from tax. Because of this fact however, the accounts come with a cap on how much you can pay in.
2.Fixed rate bonds
If you have used up your full cash ISA allowance and are looking to save in the long term, you may want to consider a fixed rate bond as the interest you earn will be better than other available accounts. However, you will need to invest a set amount at the offset, which you typically won’t be allowed to add to or withdraw from.
It sounds odd but, these days some current accounts pay more than even the best savings accounts – and are totally flexible when it comes to getting access to your cash. The downside is the higher rate of interest will only apply to a set limit – for example the first $20,000.
With savings rates notoriously low, it’s never been more important to shop around for the accounts that will squeeze the most from your cash – especially as it takes so long to earn it!
You should also make sure you regularly review your savings accounts and move your money if better rates become available elsewhere.
Thanks to Leonie for her expert knowledge
Wealthology Founder & Investment Specialist
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