There's a lot of information around for first home buyers, but for most, the burning question is how much you actually need for a deposit?
Of course, the more you have to put down on your new home, the better, but knowing the ballpark to aim for can make your homeowner dream more realistic and attainable.
At P&N Bank, first home buyers can borrow up to 95% of the purchase price of their new property.
However, unfortunately it's not quite as simple as saying that you just need a 5% deposit.
If you want to borrow 95%, the short story is - your deposit will need to factor in any Lenders' Mortgage Insurance (LMI) premiums and upfront fees within the 95% value of the property.
Do I need it? Why do I need it? What does it get me? These are common questions. LMI can affect your deposit, so it's important to know about it.
First of all, what is Lenders' Mortgage Insurance (LMI)?
Any mortgage comes with a risk for the bank. The more you have to borrow, the greater that risk. LMI is insurance for the bank, because they're lending a proportion of value of the property that may not be able to be recovered in full if something goes wrong. However, as the borrower, you're responsible for the premium.
This means that the first, and biggest, thing that may affect your deposit is this LMI. If your deposit is less than 20%, you must take out LMI (or have a guarantor for your loan) to protect the bank against the lending risk. Your LMI premium will be added to the total of your loan, however, your total loan cannot exceed 95% of the purchase price of the property. Depending on your property price, plus the cost of your LMI, you may need enough to cover all or part of the costs of LMI upfront, as part of or on top of your deposit amount.
If you've got a bigger pot saved - 20% of the price or more (in metropolitan areas) - you avoid the need for LMI, so of course we recommend saving as much as you can to avoid paying more in the long run.
Some loans may attract upfront fees, such as establishment fees, stamp duty, valuation fees, document fees, security guarantee fees and other government fees, depending on your financial institution or broker and the type of loan. These may also vary based on the type of property you're buying, and even location. You may need to cover these upfront on top of your deposit, so when looking for the best loan for you, consider those with fewer or lower fees.
The First Home Owner Grant in WA applies to new homes only; that is, when you build or buy off the plan. The grant can go towards your deposit, LMI premium, or can be deposited into your everyday account to help with the costs of getting your own home. If you're buying an already built home, unfortunately you can't access the grant. However, you might avoid paying stamp duty on your new home if the purchase price is under $430,000.
It's hard getting started as a first home buyer, particularly when you just want to know how much you need to save for your house. Unfortunately the answer isn't one size fits all. The simplest solution is to talk to your bank about what to expect and how much to save, and they can even help with a savings plan to try and get you there sooner. At P&N, we even have consultants that can come to you, anywhere, anytime.
Find out more about our home loan options for First Home Buyers.
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