Updated: Aug 23, 2020
How to start planning to buy your first home.
Worried you won’t be able to buy your first home? You’re not alone! It often feels like the odds are stacked against people wanting to buy their first home in the current economic climate. Today we have easier access to credit than ever before. We no longer have to save up or lay by to get what we want – that’s what credit cards and Afterpay is for, right? On top of this, house prices generally increase steadily over time, making properties today seem inaccessibly expensive. Buying your first home isn’t completely out of reach though. The average household income today has approximately doubled since 1990 and interest rates have fallen dramatically. In the early 90s, interest rates were as high as 17%! All things considered, it’s still possible for the average household to service a home loan with as little as 25% of their income. You may be wondering, if it’s so doable, then why are young people so concerned they won’t be able to afford their first home? Okay, we said it was possible, we didn’t say it was easy. It’s definitely still possible for people to get into their first home, but it does require making some sacrifices. Today we are starting families later in life, and have different priorities when it comes to spending money. Data from Macquarie (2017) shows that Millenials are spending significantly more on eating out and hobbies compared to their baby boomer parents. This research also found that spending on experiences like music festivals and travel was more of a priority for younger Australians than purchasing material possessions. Now we love Yacht Week as much as the next person, but you can’t have your cake and eat it too. Buying a home is a big commitment that will take months (okay, years) of saving, so you’ll really need to plan ahead and weigh up how important buying a home is to you at this point in your life. Ask yourself – are you prepared to:
Slow down your travel plans?
Give up avocado?
Drink instant coffee??
Okay, if you’re sure you’re ready to start planning to buy your first home then read on. How to start planning to buy a home Pay off debts
Imagine if you could be putting your monthly car loan or credit card repayment into a savings account instead. You’d probably have a deposit in no time!
If your household has more than one car, consider whether you could share one vehicle instead to save on repayments, insurance and registration costs.
If you have multiple personal loans or credit cards, research options to consolidate your debts into one manageable repayment with a lower interest rate.
Look at your last three credit card statements and break down your spending into different types of expenses to see what’s contributing most to your debt. Is it a gym membership you don’t use? Online shopping? Fast food? Start with the biggest expense and try to cut it out for a month. If you can live without it, pick something else to cut the next month and so on.
Stay in the know
If you want to get a good deal on your first home while still making a smart investment, it’s really important to be constantly researching the market from the start so you know how to spot a good opportunity when it’s time to buy.
Use sites like Realestate.com.au or Domain.com.au to set up searches for homes for sale and subscribe to email updates so you can see what’s on offer and get a feel for prices over time.
These sites also allow you to research historical auction results and median house pricing for different suburbs.
Stay up to date with other housing market activity by following relevant blogs by industry experts.
Set a goal
Move over #couplegoals – it’s time to focus on your savings goals. It’s one thing to be saving regularly but having specific goals in place will motivate you to save more and help you predict when you will have your deposited saved in full. When formulating a goal amount to save, remember to include additional upfront costs of buying a home like stamp duty, conveyancing fees and utility connection fees. These will usually cost at least 5% of the value of your home.
Create a budget spreadsheet outlining your income and expenses so you can easily see how much disposable income you can save. Set a realistic savings goal to put away each time you get paid and turn this into a chart so you can see a visual of how the money will accumulate over time. This helps make it feel more real!
Once you’ve created a chart you’ll be able to see a projection of when you should reach your savings goal. Hold yourself accountable to this date to encourage yourself to stay on track with your savings. Having said this, don’t rush to buy a home as soon as the money is saved, it’s still important to shop around for the right property.
Congratulations on choosing to start planning to buy your first home. If you’d like to read more about how to save for your dream home without giving up your lifestyle, you can read more on that here.