How Much Deposit Do I Need to Buy a House?
As a first home buyer or someone who’s looking at purchasing their next property you may be wondering how much deposit you need saved to buy a house.
This is an essential factor in planning for your property purchase and we’ve broken it down below depending on your circumstances.
The Deposit For Buying Your First Property
How much deposit do I need to buy a house as a first home owner?
If you are buying your first property then ideally you need a deposit in the region of 10-20% of the property price.
20% is best as you will forfeit the requirement for Lenders Mortgage Insurance or LMI.
If you are looking to buy a property for $400K then you ideally need a deposit of $80K, plus funds to cover other relevant fees (building report, solicitor fees etc).
If you are struggling to save 20% then shop around to see different options that lenders may be offering. Speaking to a mortgage broker is a great place to start and provide you with some advice on your options.
When you take out a loan with a 5% or 10% deposit then you will need to pay LMI, talk to your mortgage broker about how much this would be. This will depend on the loan amount and the percentage of the property that you are borrowing.
Lenders Mortgage Insurance
Lenders Mortgage is essentially there to protect the bank or lender of your mortgage. In the unlikely case that you can’t pay the repayments then the lender has some additional capital to make up any shortfalls.
For example, the lender may have to seize the property and sell it to get their money back. If they make a loss from the sale, then the LMI seeks to soften the impact to the lender.
Savings Schemes and Grants
Make sure you know what savings schemes or grants that are available to you. For example you may be eligible to use the First Home Super Saver Scheme to help you save for your deposit.
This scheme allows you to make voluntary contributions to your super fund (with tax savings) to help you build up your deposit for your first home.
There is also the First Home Loan Deposit Scheme (FHLDS) which is due to open in January 2020. This will enable eligible First Home Buyers to purchase properties with a deposit as low as 5% with the Government providing a guarantee.
Eligibility is based on income and is capped at property price thresholds, which vary depending on which state you buy in and whether its in a Capital city and regional centre or ‘rest of state’.
In NSW in capital city and regional centres the threshold is $700,000. Refer to the FHLDS eligibility web page for more information.
How To Save For Your Home Deposit
1. Work Out What You Can Save
The best way to start saving is to work out how much you can save each week, fortnight or month. Keep saving the same amount, or similar, over time. This shows your lender that you can consistently save and are likely to be able to service mortgage repayments.
2. Avoid Large Payments
Avoid making any large outgoing payments while you are saving for your home, such as expensive holidays. The lender will want to see that you are not too lavish with your spending, and that you spend well within your budget. By all means go on holiday if you can continue saving those regular amount for your deposit at the same time!
3. Optimise Your Finances
In addition take a look at your finances or spending habits. Are there any things you spend money on that you don’t need to? If you can divert these funds into saving for your deposit then do that. You’ll be able to reach your goals quicker and most likely get a better opportunity, particularly if property prices are increasing.
4. Stable Employment
Stable employment will allow you to save regular amounts and will demonstrate loan affordability. So if you are in a permanent role, stay in it if you can, at least while you are saving and up until you purchase the property. Evidence of a regular income will greatly assist your chances of being accepted for a loan.
Using Equity From Another Property For Your Deposit
How much deposit do I need to buy a house if I already own property? Again it is the same – ideally 20%.
If you’ve paid down a good chunk of your mortgage or the price of your property has increased significantly then you may have equity to cover the deposit.
Equity refers to the gap between the market value of the home and how much you have to pay back. If this equates to the 20% deposit you need for your new home then you are covered.
You’ll still need to factor in other costs such as stamp duty, building reports and conveyancing fees so make sure you have some cash saved.
In summary, the amount of deposit you need will depend on the price range of the properties you are looking at. Ideally you would have a 20% deposit, but if not shop around to see what lenders are willing to offer.
A consistent income and looking closely at your spending habits will help you to save those regular amounts that will make up the deposit to buy your property. Seek advice if you need it and understand what schemes and savings may be available to help you save for your deposit.
