Renting, renting and sick of it!

A common question in the minds of many Australians is “How can I buy my first home and stop paying dead rent money?”

Let's take a look at how you can get into your own home and what options can help you achieve this sooner.

Be realistic with your savings plan!

Statistically, it's been said that the average times to save a suitable deposit are between 3-5 years. First home buyers need an average of 4 years to save up to a 10% deposit or 7-8 years to reach 20%. Couples need about 3 years to save a 10% deposit, and can save up 20% in about 5 years. I will always recommend saving for a 20% deposit so as to avoid Lender’s Mortgage Insurance (LMI). Loans above 80% of the purchase price or market value pose an additional risk to lenders therefore attract additional costs.

The statistics above can vary greatly, depending on your personal income/s, where you’re looking to buy a home, your discipline and planning abilities. Costs such as stamp duty and LMI or Risk Fees can be a great deal depending on which State you're purchasing in, the type of property, the amount of the First Home Owner Grant (FHOG) in the respective State, and other Govt or Builder incentives available and the amount you are looking to borrow above 80% LVR. The higher the borrowing percentage of the purchase price, the higher the LMI. It is possible to borrow up to 95% of the purchase price and even capitalise the LMI or Risk Fee onto the loan (up to about 99.8% borrowings) however, beware ... the costs significantly increase. Unless you know the value of your property is going to increase over the next few years or you can manufacture increased value by renovating, you don't actually own any of your home for the foreseeable future and you're susceptible to property price drops. If the value of the prices in your area go down as little as 5%, you may not be able to change or move your loan to a better deal until you have accrued enough equity in your home (at least 10% is the goal).

As prices skyrocket especially in Sydney and Melbourne, it seems there's no time to waste to fulfill the Australian Dream of owning your own home.

So, is saving your hard earned dollars the only way to buy my first home? Let's take a look at some factors that can get you into your own home sooner!

It’s very important to be reasonable in your expectations. Buying your first home (or any home for that matter) is an 'emotional' situation. A good money coach will tell you, 'Don't buy a house or home emotionally!' You can get emotional and celebrate once you complete the purchase and the loan. There’s nothing wrong with being willing to start with something a little less than your dream home. Getting into the market is the biggest half of the battle! Try to find the best value, the lowest cost, in the best area with potential for improvements and growth in value. But do set your budget and stick to it. Make sure you engage a Professional to assist you with this and provide you with property value statistics. A good Real Estate Agent, Property expert or Mortgage Coach will be able to and happy to provide you with this valuable data - at no cost to you!

Even though purchase prices are still going up in many parts of Australia, it’s possible to cut your estimated saving time in half, if you’re smart and savvy about a solid savings plan.

Do your research and create a plan of attack! A written plan along with written goals, including pictures or photo's of inspiration will make a massive difference whether you achieve your goals or not and how soon.

Get Smart banking for faster saving!

Jump online and check out some of the comparison sites such as www.Finder.com.au www.Canstar.com.au and others to get a broad view of the options available. Interest rates and banking fees vary enormously as do terms and conditions. As you save, you may even need to change accounts depending on the starting balance of your savings and the amount you add to it each money. Bonus interest conditions vary so find the one that suits you and your banking habits best. The account you opened might not be the one you stay with once you’ve got some serious cash stashed away so be prepared to change accounts or even banks as you reach milestones such as the $10,000 mark. If you're prepared to lock your money away for a while, there are a range of introductory interest rates for as little as 4-6 months. A term deposit account may also be a good option to help reduce the temptation to use the money unnecessarily.

Hint: Setting up auto-payments directly into savings from your everyday transaction account or directly from your salary credit will make your life much easier. This way, you won’t forget to put away a specific amount each week or month and you won't miss out on the bonus interest. Some accounts even offer bonus interest if you set up an everyday savings account with them as well and even offer bonuses for your tap and go purchases each week. Remember: Do your homework and take lots of notes but beware of analysis paralysis... don't overdo the research!

There's got to be a better and faster way to purchase my own home!

If you're serious about buying your first home, then it's time to take some serious and committed actions to get you there faster.

Here's my 5 Top examples:

1. Start with a lump sum. The first $10,000 always seems to be the hardest to save, right? Find ways to pool together a descent lump sum. This will help you achieve higher savings interest but will also give you a foundation to add to. Maybe you can use your tax refund as your savings starter. Better still if you're a couple and can use both!
2. Hold a garage sale and clear out everything you haven't touched in the last 12 months. Sell brand label clothing online on Smart Phone Apps such as Carousell, Gumtree or eBay. You'll be surprised how much you've collected over the years. Maybe some of the toys in the Man-cave need to make way for your new home?
3. Don't be afraid to ask your parents for help. As prices have doubled in many areas over the last 10 years or so, many parents own homes with a large amount of equity. They may be able to and more than willing to assist you with a deposit.
4. Buy NEW - and qualify for the FHOG. The government will still assist you with the purchase costs of between $10,000 - $20,000. There are conditions on this in each State according to the purchase price and each state may vary. Queensland are still offering up to $20,000 to encourage new home owners to buy their first home as long as it's NEW (never lived in) and under $750,000. This can cut years off the timeline to purchase.
5. Look at all options to earn an extra income on the side. Keep your eyes open for where you can earn an extra dollar, even better some lump sums. eg. If you have a property or finance expert friend that you would highly recommend, they might be able to pay you a referral fee for successful client referrals - this could amount to up to thousands at a time!

We've done it! We're ready...Now what?

When you’re finally ready to apply for a loan, remember to keep the borrowings under control. Only borrow what you can afford to pay back. If you have to save a little extra, often that's the best option. You won't miss-out - there will always be another property around the corner that you love. Try to resist the temptation to start looking for a property prematurely - you could easily get attached to a property but not yet be ready.

Finally, find an excellent mortgage expert straight away. They will guide you through the savings process, give you hints and tips, encourage you and even hold you accountable to staying on track and achieve the goals you're committed to - if you ask them to! An accountability coach will enable you to achieve extraordinary results. This is why all great sporting stars have a coach! TIP: Do this NOW! Regardless of whether you are just starting out or even if you know you're not ready at all. Your game starts the minute you commit to it!

Once you've ticked off the savings plan and you're ready to start looking, the first thing you should do is get a pre-approved for your loan if possible. This will tell you exactly what you can purchase and afford. You can also use this as a bargaining tool to arrange a great deal on a property which might be a little over budget, to get if for a discounted price within or under budget when shopping for a home. A pre-approval may be the clincher which holds your offer in higher stead over another competing offer, even if your offered contract price is lower.

BONUS: 10 Practical tips for a healthy and effective savings plan

Yes, you can reach your goal of purchasing a home even sooner than you might think possible. However, this will take discipline and commitment for the long term to ensure you stay on track.

These tips must be woven into your daily life 'habits' to see how saving a little in many areas will add up:

1. Work out a realistic budget that allows you to save as regularly and systematically as possible.
2. Eat before you go grocery shopping and always take a shopping list - Plan your weekly meals. You can slash you weekly groceries bill by 2/3rd's or even 3/4's by planning what you buy to use in multiple dinners and lunches. A $250 a week grocery bill can be slashed to as little as $60 by shopping at the right times (eg. before closing time) and getting half price items that you need and not buying things you don't need. Some items can be bought in bulk too and attract big discounts - break these items up into multiple meals before you freeze them.
3. Make healthy eating choices by cutting back on snacks, nights out, excessive alcohol, coffees, and other vices! Resist temptations, binge eating and try to create meals from the pantry when possible to reduce unnecessary spending.
4. Cut out unnecessary credit cards and reduce credit spending. This can end up becoming 'lazy' spending and damage your savings plan.
5. Pay off other debts and bills as soon as possible instead of letting them accumulate. Look at whether you can change energy and phone contracts to a lower cost plan.
6. Eliminate unnecessary expenses such as subscriptions to magazines, gym memberships, netflix or other such items.
7. Increase your income by taking on extra shifts, a second job or asking for a pay rise.
8. If your circumstances allow, try boarding with family to save on living expenses.
9. Arrange a work carpool to save on transport costs either by pubic transport or vehicle expenses and fuel costs.
10. Make sure you keep it fun and create small and emotional rewards for milestones and staying on track. Create a 'Home Buyer' journey diary and track your progress. You'll keep the dream alive and it will be a great keep-sake to look back on in time to come.

Got some other tips that aren't mentioned here? Add then to the comments below. They're bound to make a difference to someone reading this article, besides, we all love to hear clever tips from our trusted community.

About the author:

John Maxwell is founder and Senior Finance & Business Strategist at Cocalex Consulting. John has over 16 years' experience in the financial services sector, and has owned and managed 9 mortgage franchises and has developed a background across the holistic financial services realm. He has particular focus and passion for: Leadership Training and Development, Franchise Development and Business Networking.