Your own house is possibly the most expensive asset most people will ever own, but before you will be able to own a house you will need to know how to save money for a house. After all, since the GFC the banks aren’t handing out 100% loans any more and so it is important that you know how to save money and work out exactly what you are looking for.
I did a 4 part post a while back on my wife’s and my experience with building a house. It was our first house and we made quite a few mistakes along the way. I guess making mistakes is part of the fun of growing up and learning, but we were lucky that we didn’t stumble across any super expensive problems.
For our house I had a budget and payment timeline planned for all the mortgage debt we were taking on. It turns out that despite my best estimating abilities not everything went to plan. To start with, interest rates bounced around like a yo yo, first going up towards 9.5% and then going down into the mid 4% range thanks to the GFC. My wife and I got married, which cost a small fortune, we spent $5000 on a dog with bad elbows and we recently had a son. The list could go on for quite a while but the point is that all these things cost money.
What I am trying to say is that life will likely get in the way of even the best laid plans and so you need to factor in “life” when it comes to planning for a house.
What can you afford?
The biggest question that you should be asking yourself when it comes to how to save money for a house is – What is my budget, how much am I willing to spend on a property? Remember that no matter what you think your maximum is, your bank might have a different idea. My advice is to go see your bank before shopping for a house. The reason for this is that the bank will tell you exactly how much they are willing to lend you and then you can go looking at houses in your price range.
There is nothing more disappointing than checking out really nice houses and getting a certain level of expectations, only to have them dashed by the bank manager. You are best off starting small and working your way up.
Once the bank manager tells you what they will lend you, you then need to decide if you really want to spend that much. Between you and your spouse you then need to consider how much of your weekly pay packet you feel that you can put towards servicing a loan. Remembering that every single dollar you borrow needs to be paid back with interest. My personal opinion on mortgage debt is that you should try to spend as small of an amount as possible on a house, and to make sure you can make as many additional repayments into the loan as possible. This way you will be able to reduce your debt a lot faster.
If you want to get an idea about repayments then there are mortgage calculators available that might come in handy.
Where do you want to live?
Working out where you want to live versus where you can afford to live also needs to be carefully considered. As an example – I would love to live by the beach, but the cost of me getting to work would sky rocket as I would be travelling far more and I would also be a lot more time poor. I could always get a different job somewhere a little closer to the beach, but there is no guarantee that I would land a job and even if I did, it might not pay as much as I get now.
Remember than no matter where you live there will be costs associated with that choice. It might be more fuel for the car, public transport costs and I have even heard of groceries being more expensive depending on where you live. If you live in a gated community, town house or a unit then you might also have body corporate fees that need to be paid. All of these things need to be taken into consideration prior to buying a house.
Saving Money for a Down Payment
Something many people don’t consider is that the bigger the down payment that you can produce, the better off you are going to be. If you can manage to save up a decent down payment then you will not have to borrow as much and you will likely pay less on mortgage insurance. You will also be a more attractive proposition for a bank to take you on and you might be able to negotiate a better deal on any mortgage.
I personally believe that you should practice paying the same amount you are expecting to pay into your mortgage into a down payment account. That way you will be saving money as a deposit for your house, and you will get used to the amount of money that you will eventually have to end up paying back to the bank. This enables you to adjust your standard of living to fit in with your debt repayments so you won’t get a nasty shock when it comes time to start paying the bank.