How to nail a savings game plan
Saving for a house is no mean feat, whether it be your first purchase or not.
And if you're anything like I was when I first bought, the extra costs beyond the deposit can be a huge shock to the system.
What I've learnt along the way is don't assume you've got it all figured out - sit down with your accountant or mortgage broker and work through the nitty gritty of your personal finances as an early step in your househunt.
This can often be confronting, but it's important to know where you stand and what you need to do to snare your dream home.
HOME GOALS: Getting in a position to strike
Accountant Lisa Tucker, director of Stockdale and Associates, advises clients wanting to build up a home deposit to develop "a savings plan".
This concept was familiar to me as in sport, once you have a game plan, you know what you need to do to pull off your goal.
A starting point is being aware a deposit will typically be about 10-20 per cent of the value of the property you want to buy. When you buy at auction, you're required to pay a 10 per cent deposit. And getting up to 20 per cent means you don't have to pay lender's mortgage insurance.
Lisa then suggests doing "an audit" of basically everything you spend money on. This can be a scary reality check.
I started by going through my bank statements and looking at every transaction.
I worked out what my non-negotiable expenses were - rent, mortgage, bills and other living costs - and how much I needed to allow per month for them.
Then I determined the not-so-essential costs, like online shopping, Uber Eats, and TV and gym subscriptions.
I had so many direct debits coming out of my account I had forgotten about. I had to change my mindset on a lot of those expenses - if it wasn't "100 per cent hell yes I need it", then it had to be a no.
Lisa says you should then work out "an achievable amount of time to save the money you need" and create a budget to achieve that.
I set up a separate savings account and made it so $50 automatically transfers into it each week. It really does add up over time, and it removes the temptation of touching the money.
Lisa also emphasised the importance of "surrounding yourself with trusted experts who can support you through the process". To start with, this would be your accountant and mortgage broker.
In addition to the deposit, there are several extra costs you don't want to be surprised by, like I was with some of them. You'll need to factor these into your savings goal.
Stamp duty can be an expensive one.
But if you're planning on buying in Victoria before June 30, 2021, you could enjoy considerable savings on this. The latest state budget, which is focused on recovery from COVID-19, has halved the tax for those buying new homes and cut it by 25 per cent for those buying established homes, if they cost less than $1m.
And there are other stamp duty concessions you may be eligible for, with first-home buyers who spend less than $600,000 notably exempt from the tax and those who spend less than $750,000 receiving a discount.
I don't think I will be able to make the most of these. But I'm also not one to read the fine print, so I'll be relying on my experts to guide me.
Another cost to take into account is pest and building inspections. I know it's easy to look at a home and think it's safe and sound. But spending the $400-$600 per inspection before you purchase, via auction or private sale, might save you a lot of money in the long run.
On this, BST Legal principal lawyer Ty Brierly told me: "Purchasers often believe signing a contract subject to building and pest inspection allows them to exit it, but that is not the case for a number of reasons.
"To protect against that, obtain a report before an offer is made."
On top of all this, we have legal fees, bank fees, loan establishment fees, moving costs … sometimes it feels like the expenses will never end.
It will cost about $1200-$2500 to engage a conveyancer to support you through the process - and Ty was adamant "buyers shouldn't wait until signing a contract" to do so. The fees include some pre-sale contract checks before you even arrive on auction day or put in an offer.
He noted, thankfully, people were doing this less and less these days, with only 5 per cent of his clientele calling after signing a sales contract.
Hopefully all this hasn't scared you off. But the piece of advice I've heard repeatedly from the experts is the old cliche: knowledge is power.
Once you have it, I guess it's up to you what you do with it.
Originally published as How to nail a savings game plan