Often the biggest headache when being a first home owner is saving for the deposit.

How much should you save?

The golden rule for home deposits is to save 20%.

A 20% deposit will make you more attractive to lenders so it could help you to secure a better interest rate. It may also save you money because your lender is less likely to insist on Lenders’ Mortgage Insurance, which protects them in the event that you default on repayments. If you can’t quite reach the 20% target, get as close as you can.

How to save

Once you’ve got a savings target, the best thing to do is to set up automatic transfers from your bank account to a separate savings account. Set this up to take place just after your pay hits your account, so you aren’t tempted to spend the money.

It’s easy as 1, 2, 3

To help you decide how much to transfer, there are three sums you can do. See what number each of them produces and try for an amount that fits them all if possible.

First, use a mortgage calculator to work out what the mortgage repayments would be for the sort of home you’re hoping to buy. If you can save the repayment amount, you will prove to yourself – and to prospective lenders – that you can service the loan.

Secondly, create a budget to work out what you can afford whilst maintaining a reasonable lifestyle. Remember mortgages are about the long haul.

Thirdly decide how fast you want to try to reach your deposit target. Divide the amount by the number of months and you have your monthly savings goal.

Lenders like to see evidence of regular savings over a period of time, so this approach achieves that goal as well as getting your deposit together.

As an attractive borrower, you can then turn the tables on the banks. Let them compete to offer you the best home loan.

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