Thursday, September 28, 2017

Savvy Ways To Save For Your First Home Deposit

One of life’s unfair facts is that despite mortgage payments being less expensive than what you pay in rent, it’s still pretty hard to convince a bank that you are worthy of a home loan. In many cases, you need to have access to a significant amount of money to put down as a deposit - of value that is somewhere between 10-15%. It’s an astonishing sum, and it’s something of an uphill struggle to raise it, especially when you consider the cost of living. However, there are a few things you can try that could free up some cash and put towards your first home. Let’s take a look at some of your options right now.

Go home
OK, so it’s understandable that once you leave the family home, you don’t really want to go back. You’re an adult, of course, and are trying to forge your own path in life. But, given that one of your biggest expenses - and, therefore, your biggest hurdle - is your rental payments, it’s an option well worth considering. Let’s say you agree to stay at home for a few months - you could save an astonishing amount of money that is a good starting point for a home loan. If you can last a year, even better. The monthly cost of the average one-bed apartment in Singapore is somewhere in the region of $3,000 - and it will be significantly more if you are renting a house. It’s all money down the drain, and it could form a substantial part of your deposit for the sake of a year or so living with your folks.

Be nice to your folks!
You might not have tapped into the Bank Of Mom & Dad for many years, but the chances are it is still very much open. Yes, it’s often a little embarrassing to turn up at the family home with a begging bowl, but there’s no need to see it like that. Your parents probably have their money tucked away in savings, and if you feel guilty about borrowing, just consider matching - or even bettering - their interest rate. Your folks will get more back for their troubles than they would earn at the bank, and you will pay far less in interest than you would from a loan. Everyone wins, and you get a nice, chunky deposit to go towards your first ever home.

Find a cheaper place to live
Going home isn’t an option for most people, however. The chances are that you need to stay in your current location due to work and other commitments, and many parents downsize once the kids eventually leave home. So, what to do? Well, if you are living in a comfortable, large rental property, you might take a hint from your folks and consider downsizing, too. You could stay with friends, consider a house share, or perhaps look at the HDB flat rental list in your area. Ultimately, downsizing for just a year or two could save you thousands, all of which could be put to better use as part of a big old deposit.

Rent out a room
But what if you can’t downsize? Maybe you have a young family and need the bedrooms? If so, consider freeing up space in your house and renting out that room. It will subsidize the cost of your rent, reduce your bills, and all of that money can be put straight into your savings account. It’s not ideal, of course, and you will have to be diligent about who you offer the room to, as well as checking the legal situation with your landlord. But at the end of the day, it’s a clever and efficient tactic that raises a lot of money in a relatively short period of time. Whenever you are saving for anything, there is always a sacrifice of sorts - and this particular sacrifice can work nicely for some people.

Check for grants and subsidies
You may be eligible for a grant via a special, government-run program. You can apply for a CPF Housing Grant, Additional CPF or a Proximity Housing Grant, for example. It’s really worth checking out your options, as the money you can save is not insignificant. Another option is to buy an HDB or BTO flat, which are often considerably cheaper than the private market and require less of a deposit- if any. However, bear in mind that there is a low earnings threshold for these types of grants and subsidies.

Raid your emergency savings account
If you are a sensible household, your emergency savings account should be of considerable size. According to most financial experts, you should have something like six months of ordinary income set aside for emergencies or household disasters. In most cases, this would be a good injection of cash and ideal for forming the basis of a good deposit. However, as you can imagine, this tactic is a little fraught with risk. You are leaving yourself financially exposed, and relying on Lady Luck to ensure nothing bad - or expensive - happens until you build up the emergency fund to a safe level again. It could take months - or even years, so it’s a decision you’ll need to think long and hard about.

Boost your savings
Ultimately, most people have to start saving and put away substantial amounts of cash every month to build up their deposit. It’s never too late to start, and once you get into good financial habits, you’ll find that saving becomes second nature. You just have to be a little ruthless. Put your vacation plans on hold, and consider downsizing your festive holiday gifting - that’s two easy wins already. Stop going out so much and put every dollar saved into your account on a weekly basis. We’ll take a look at some tips on making a strict budget in a moment, but it’s important to remember that without one, it will be tricky to put any money away. And don’t forget, where you put your money is equally as important as how much you put away. Savings accounts come in all shapes and sizes, and if you are willing to switch to long-term accounts, you will get a better rate of interest. Never turn your nose up at the prospect of free money, as it will all help massively in the end.

Work out a strict budget
OK, so if you want to boost your savings account, you have to cut back on your spending, increase your income, or both. Regardless of your chosen method, it’s vital to draw up a strict budget plan. Write down all your incomings and outgoings - anything at all you spend money on. Then it’s a case of working out where you can make some savings. Perhaps you could raise a few hundred a year by switching your electricity supplier, or maybe you could cut the cord on your cable TV service and use cheap streaming alternatives instead? There is money to be saved in every area of life, from switching your grocery shopping from branded products to generic options, through to making your own lunch instead of buying it. Again, be as ruthless as possible, and you’ll find you can save a small fortune in no time at all.

Get a guarantor
Finally, what happens if you just can’t save a single bean towards a deposit? The good news is there is still an option for you. Some mortgage providers will be happy to lend you a loan with no deposit, on the proviso you have a guarantor. Normally, it’s your parents that would guarantee your loan, but close relatives and friends might also be willing to step up to the plate. It can be tricky to persuade people to be your guarantee, but it just shows that anything is possible. Good luck!

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