So — the question on every first homebuyer’s lips — how much do you need for a deposit?
At Aussie Living, we are lucky to have a dedicated and experience finance partner in The Loan Co. We recently spoke with Sales Manager, Andy Drake, about the deposit question.
Quite simply, it depends on your lender and their lending criteria.
Some lenders may let you borrow 98% of your home’s value, so you may only need to save a 2% deposit. That could be as little as $8,000 for a property worth $400,000.
Others generally require 5% deposit which is approximately $20,000 on a $400,000 purchase.
The question we are often asked is should I wait and save a larger deposit. Most would assume this would be a better outcome but is not always the case.
It’s true are larger deposit will provide you with more lending option and reduce your loan amount however depending on how long it will take you to save for the larger deposit you could be worse off.
LET US EXPLAIN
The longer it takes to save a deposit has you at risk of the market rising during this time. As is the case with the current property market which is growing approximately 5-10% per annum
For most people it takes around 2 years to save for a 5% deposit. In the above example this would result in the $400,000 property being now being $484,000 at the end of the 2-year period.
Had you purchased on the lower deposit option from day one you would be approximately $80,000 better off.
Your home loan deposit is likely to be a cash deposit, but there are a few other deposit options that lenders may accept.
USING THE FIRST HOME OWNER GRANT (FHOG) AS A DEPOSIT
In some cases, The First Home Owner Grant (FHOG), could also count towards your deposit. In most cases FHOG is used towards your fees and mortgage costs.
USING A GUARANTOR FOR YOUR HOME LOAN
If you don’t have the money for a deposit, another option available is to use a guarantor for your home loan. This is where a family member uses the value stored in their house as guarantee against all or part of your loan. This can put both of you at risk if you don’t meet repayments, so it’s important to carefully consider if having a guarantor is right for you.
Alternatively, your friends or family could instead add to your savings with a cash gift. This type of deposit is accepted by some lenders — and it can be a handy way to get a home loan approved if a great opportunity comes up, and you’re a bit strapped for cash at the time.
LENDERS MORTGAGE INSURANCE (LMI)
If you can put down a deposit of 20% or more, you can often avoid paying what’s known as ‘Lender’s Mortgage Insurance’ (LMI). This protects the lender if you cannot repay your loan, so it’s a cost worth avoiding if possible.
LOAN TO VALUE RATIO (LVR)
LVR comes up often when people talk about home loans. It refers to the amount that you want to borrow, as a percentage of the value of the property.
Say, for example, you borrow $375,000 for a property worth $400,000. Your LVR would be 95% – you would need to pay LMI.
THE PAPERWORK REQUIRED FOR YOUR LOAN
When you’re ready to apply for a home loan, you’ll need to get some paperwork ready. Your lender will need to see some proof of your identity plus a few other documents, including;
- Bank statements, to show you really have savings
- Recent credit card statements
- Your most recent PAYG summary or ‘group certificate’, and
- Your two most recent pay slips.
There are further paperwork requirements if you’re building a new home, plus, you’ll need some paperwork about your business if you’re self-employed.
If this all seems a bit confusing, don’t worry The Loan Co and Aussie Living Homes are here to help with any deposit situation.
For more information or to understand if you qualify contact us today.