How much is enough for a first home deposit?

There’s a lot to think about when you’re looking to get your foot on the property ladder. And one of the things that can be hard to know is when to stop saving and actually take the plunge. In other words, how much do you really need when it comes to a house deposit?

Let’s take a closer look...

It’s possible to get a home loan with as little as 5 or 10% deposit, but banks and financial institutions usually recommend saving at least 20% of the purchase price, aka, the Loan to Value Ratio (LVR). Bank-speak aside though, it just means that if you’re looking to buy something around the $500,000 mark, you’d need to save at least $100,000 to have a 20% deposit.

Why is it better to have 20%?

For one, when you have a bigger deposit you won’t need to borrow as much which means you’re a lower risk for a lender. And the lower the risk you are as a borrower, the more likely you’ll be to get the tick of approval on your home loan.

Borrowing less also means paying less interest over the life of your loan, plus, having 20% or more means avoiding additional loan costs like Lenders Mortgage Insurance (LMI) too. Winner winner chicken dinner!

What’s LMI anyway?

It’s an insurance policy that a lender takes out to protect them if a borrower can’t keep up with their mortgage repayments and defaults on their loan. It will cover the shortfall if the lender has to sell the property, and the proceeds don’t fully cover the balance owing on the loan. Lenders will usually ask you to pay LMI if your deposit is less than 20%, which could mean thousands more on top of your deposit, payable either upfront or rolled into your total loan amount. 

You can find out more about Lenders Mortgage Insurance here.

Can I get a loan with less than 20%? 

It’s possible, yes. In theory, you can borrow with a deposit as low as 5%, but you’ll need to show that you can service your loan by providing evidence of a good credit history and secure, ongoing employment with enough income to meet your loan repayments and living expenses. As well as paying LMI when you have a smaller deposit, you might also be asked to provide a guarantor for your loan.

Buying a place to call your own can be an important milestone in life and a big step towards a healthy financial future. And with house prices on the rise, you might be keen to get your foot on the ladder sooner rather than later - if you’ve got a smaller deposit, LMI is one way that can help you buy your own place sooner.  

Don’t forget upfront costs

Even though as a first home owner you could be eligible for stamp duty concessions in your state or territory, things like valuation charges, solicitors fees, government charges and building and pest inspections can add thousands of dollars to your purchase costs. Make sure you allow enough to cover all those additional costs that come with buying a home. 

Want a home loan with benefits?

If you’re looking to buy sooner rather than later, it can really pay to do your homework to make sure you get the best value loan for your needs. Our Your Way Plus Home Loan offers special low rates and extra discounts exclusively to essential worker legends like you. Explore your home loan options here.