How to save for a deposit while renting

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It's no secret that property prices in Australian cities are so high, for both buying and renting, that lots of people live with their parents out of necessity to save for a 10-20 per cent deposit to buy their own home.

My husband and I lived comfortably with my in-laws before my daughter was born, but it was a very different situation after she came along. We appreciated the arrangement because it helped us to save, but it was completely impractical, especially when considering when we would have another child.

So like many young families, we had no choice but to rent. Not everyone can live with their parents, especially if they live interstate or overseas, and there is a need to be close to the city to avoid logistical difficulties with getting to work and childcare.

For this reason many couples delay having kids before buying a home, because the expense of renting and kids often leaves very little to put towards a deposit. However, it is possible to save money when you rent, and certain things can be done to build a deposit faster.

Spend as little on rent as possible

Lenders do take into account the cost of kids when assessing a family's mortgage application. Fortunately, most banks will consider any money you are paying in rent to be funds you can contribute towards a mortgage.

"Having children does affect your borrowing capacity, but not dramatically," says David Rankin, former bank manager and owner of Sort My Money. "A number of banks view rent as genuine savings."

That means the thousands you pay in rent every month is actually proof of financial stability, provided you aren't stretching yourself. That's why it's important not to spend more than 30 per cent of your total budget on housing, but it doesn't mean you have to move far away or into a tiny unit to reduce your rent.

Jessica Darnbrough, Head of Corporate Affairs at Mortgage Choice Financial Planning, suggests one simple way to save can be to rent a place with fewer bedrooms. Kids often enjoy sharing a room when they're young. If you keep the property in good condition you'll get your bond back in full to put towards the deposit, too.

Sharing a rental property with another family, where everyone's name is on the lease, can be an ideal arrangement for two single parents, or two families where the parents are friends. It's best to look for a place with two bathrooms and plenty of parking so each family has enough space, though.

Check also to see if you're entitled to rent assistance or the low income supplement through the Department of Human Services.

Understand when paying off debt is more important than saving

Many people believe that saving needs to be their priority but there's no point in applying for a mortgage if you still have debt, especially debts with high interest rates. "Lenders will want to see a savings history over a reasonable period of time, usually at least six months, but it generally makes sense to get rid of expensive unsecured debt, especially credit cards and store card debt first, and then focus on savings," says Peter Boehm, a finance expert and author of The Great Australian Dream: A Guide To Buying Your First Home.

Consolidate your debts into one loan or an interest free credit card, and pay as much of the debt off as you can while the terms last. Switch to another interest free card once it ends, or to a personal loan with a lower interest rate. Make extra repayments if you have any money to spare, to reduce the length of the debt and therefore the amount of interest you'll pay. If you have an offset account you can access the extra funds if you ever need them in an emergency.

Saving for a home will take longer when you have debt but don't completely deprive yourself trying to get ahead or you'll be more likely to binge spend. Natasha Stewart, co-founder of the finance website Mum CFO's, says hard-core saving isn't sustainable. "Emotions play a huge role in saving money," she says. "Allow yourself to enjoy happy treats along the way. It could be the difference between lasting the distance or not."

Try a personal budgeting company

Some families manage to stay up to date with bills and rent payments, but struggle to save. A good budgeting company will be able to figure out a way for all of the family expenses to be covered and allocate some money for savings too. They can also re-calculate your budget if there are any changes, such as when taking parental leave, or when unexpected expenses come in.

Budgeting companies do charge monthly fees but they can be minimal, especially when you consider the fees for late bill payments and how late payments can affect your credit rating. David suggests you should avoid companies that charge an establishment fee, though. "What's the point in being out of pocket before you even start?" he says.

Cull your outgoings

Use comparison services to make sure you're getting the lowest possible rates on utilities and insurance. Bundle services to receive a discount with some providers. See if you can reduce the money you spend on your bills in any other ways. For example, all the new live streaming TV services, such as Netflix, are much cheaper than a Foxtel subscription.

Shop around for a high interest savings account as well. When you're saving large amounts of money you need to make sure you're getting the best possible interest rate.

Save towards an investment, rather than a home

If you're saving for a home in an expensive suburb, it's likely it will take longer to build a deposit. If you're saving to buy an investment such as a unit, in a suburb that is more affordable, while renting in the suburb you want to live instead, you may be able to buy sooner. It does mean you'll be renting for longer but it also means you'll have some equity and still be close to work and your children's schools.

"With interest rates at record lows, we're starting to see lots of potential buyers purchasing an investment property before an owner-occupied property," says Jessica. "Make sure it's located in a suburb that has proven itself to be a strong performer in terms of growth and low vacancy rates."

"There's nothing wrong with renting a property to live in and investing in one to generate income and capital growth," Peter agrees. "Your time horizon should be at least 5 to 7 years for the property to ride out the typical property cycle and enabling you to come out ahead."

Chat with other about saving and money matters on the Essential Baby forum.