How Much Should You Save for a Home Deposit?

Saving for a home deposit is no easy feat considering that house prices are soaring in most Australian cities.

In today’s market, how much do you beed to buy your first home? Are you required to pay the full 20% deposit, or are some lenders willing to accept less?

Here are some important things you need to know:

What is the required home deposit by banks?

You don’t need to save a 20% deposit before you can approach a bank for a loan. Most banks are willing to offer loan to buyers with less than a 20% deposit – some even accepts as little as 5%.

Aside from the deposit and stamp duty, buyers also need to pay for lenders’ mortgage insurance (LMI), which helps minimise lenders’ risk of lending to people with small savings.

LMI generally applies to borrowers with less than 20% of the purchase price. But this rule exempts borrowers who plan to buy in high-density areas like inner-city suburbs, commercial properties or self-managed super fund investments. The required deposit for this type of purchase is 30%.

Is saving for a bigger deposit beneficial for first-home buyers?

Borrowers should always consider that the properties in their price range may increase in value by considerably more than the cost of the LMI when making a decision about when and how much to borrow.

In some cases, it pays more for customers to purchase the property and get that insurance, because by the time they are able to save the required deposit to dodge the mortgage insurance, property values have increased again and they’re actually behind even further.

What other items will the buyer pay for?

There are many concessions given to first-home buyers that allow them to avoid paying for some costs typically associated with purchasing property. This, however, depends on which state you’re buying and the purchase price.

In Victoria, any property purchased with a price of as much as $600,000 has no stamp duty and properties valued from $600,000 to $750,000 have a sliding scale of concessions.

Properties valued at $750,000 or more are expected to carry duties of about 5% of the purchase price, which is $40,000 on a $750,000 property.

There are other smaller items to pay for such as conveyancing and title transfers, which could amount to roughly $2,500.

Lending requirements of banks

Different banks, different rules and standards. Most lenders are flexible, but it will depend on the borrower’s personal financial situation.

Of course, it’s always better to give more to the bank so you’d pay less interest. However, this would depend on your particular situation. Do you have a good income, have you been in your current job for a long time? If you just had a pay raise, you’re capable of making those repayments.

The rates and fees will not change any time soon. The key is looking carefully at your options to secure the loan that best fit your needs.

Let me know if you would like to speak with or need advise from a lender.