Saving a deposit for a house
Deciding how much you’ll need and the best way to save it.
There are two main things to consider when you’re thinking about buying a house – the deposit and the ongoing mortgage payments.
Set a savings goal
The first step is working out how much you’ll need for a deposit. Here’s how to figure it out. It might seem a bit back to front, but rather than starting with the type of house you want, try starting with the level of mortgage payments you’ll be able to afford.
Step 1: What loan payments could you afford?
Find out how much you will be able to put towards home loan payments by doing a budget to see how your weekly, fortnightly and monthly expenses compare to your income. Our guide on budgeting will give you some ideas on how to do this.
Step 2: How much can you afford to borrow?
Visit a bank or use an online calculator, like the one on sorted.org.nz to figure out how much you could borrow, based on the loan payments you can afford to pay each fortnight or month.
Step 3: What deposit will be needed?
Most banks will lend you 80% of the value of your home, so your deposit will be the other 20%. This means your deposit will be at least a quarter of the loan you can afford, which you worked out in step two, and a fifth of the house value.
Did you know?
If you worked out that you can afford the payments on a $400,000 loan over 25 years, you’ll need a deposit of $100,000. And you’ll be looking for a home worth around $500,000.
Plan to reach your goal
Now that you know what your goal is, it’s time to start some serious saving. Here are the basic steps.
- Use your income vs expenses budget to decide on a regular amount that you can comfortably save towards your deposit
- Have that amount transferred each time from your everyday account into a high-interest savings account
- Use a savings calculator to find out when you’ll reach your goal
- As your savings grow, ask the bank about moving some of it into a low risk investment option, like a term deposit that might pay more interest
- When you get close to reaching the deposit needed, you can start planning! Begin by thinking about things like house size, location and proximity to amenities like schools, public transport and shops