Posted on 01/06/2018

First Home Buyers

First Home Buyers

How much deposit will I need? 

We get it. Owning your own home isn’t as easy as it used to be. But that doesn’t mean it isn’t still possible. A good strategy and a little bit of planning can help you get there.

The deposit

If you’re not lucky enough to have a huge stash of cash in the bank (and let’s face it, not many of us are!) you may need to get a home loan. And for a home loan you’ll need a deposit - a percentage of the price of the property you want to buy in cash. The home loan covers the rest of the property price, but you’ll need to provide the deposit.

How much do I need to secure a home loan?

In most cases home loan lenders will lend up to a maximum of 80% of the property purchase value (or more with Lenders Mortgage Insurance). If you were to borrow 80%, you’d need to come up with the other 20% (your deposit). So for a property of $400,000 for example, you’ll need to have a cash deposit of $80,000 (20%). Saying that one bank offers 2% deposit and no mortgage insurance

Calculate how much you can borrow

A good strategy and a little bit of planning can help you get there.

The pros and cons of smaller deposits

$80,000 is a lot of money. When you have rent and bills and groceries to pay for, it’s not easy to save that much. Some lenders understand this and to help you get into your own home faster, will allow you to borrow more than 80% of the property’s value. Some will offer up to 95%. This means your deposit will be 5%, plus the associated purchase costs. Based on the $400,000 property example above, 5% would be $20,000 - a bit more doable.

But of course, a smaller deposit comes with greater risk. If interest rates rise or unexpected expenses pop up and you’re borrowing at maximum capacity, you could get caught short. Because there’s a greater risk, you also have to pay Lenders Mortgage Insurance (LMI) ? for any deposit under 20%. LMI is paid to the bank’s insurer to cover the bank in the event you default on your home loan (borrowings above a loan to value ratio of 80/20 are considered ‘higher risk’). You can pay your LMI as part of your deposit, or depending on how much LMI you have to pay, you can add it to your Home Loan.

Getting a bit of help – guarantor loans

If saving a deposit is challenging and you want to live in your own home sooner, you may be able to get help from family who can act as a guarantor on the loan. The guarantor - which must be an immediate adult family member - agrees to use the equity in their property as additional security for your property, instead of a deposit. Keep in mind that your family guarantor might need to have their mortgage with the same bank, so they may need to consider moving their home loan.

As the borrower, you’ll need to be able to repay the home loan like normal. Once you’ve paid off part of the loan or your property has increased in value, you can apply to remove the guarantee, which means your family member will no longer be liable for any default on the repayments.

Family Guarantee Options 

Other Costs

It’s important to factor in all the costs of buying a home. As well as the deposit, there are some other upfront fees you’ll need to cover. This includes (but is not limited to):

  • Mortgage Registration Fee
  • Transfer Fee (or commonly referred to as “Transfer of Title Fee”)
  • Title Search Fee
  • Stamp Duty
  • Pest and Building Inspections
  • Home Building Insurance
  • Calculate your home loan fees

Start planning and you could be moving into your home sooner than you think. Good luck!

Calculate potential buying fees

Start planning and you could be moving into your home sooner than you think.