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& My home

How much do I need for a home loan deposit?

Heterosexual couple embracing while standing in house, surrounded by boxes

If you’re thinking about buying your first home, your initial thought will most likely be “how much do I need to save for a home loan deposit?”

To help you get started, we’ve answered some of the most common questions first home buyers have when it comes to saving for a deposit.

How do I work out how much I need to save for a home loan deposit?

The general rule of thumb is that you will require between 5% and 20% of the property purchase price as a deposit to be eligible for a home loan. At the end of the day, the bigger your deposit is, the better.

How do I know if I require a 5%, 10% or 20% deposit?

How much you need for a home loan deposit will depend on your budget, income, and savings ability. You can use our Home Loan Borrowing Power Calculator to help you work out how much you may be eligible to borrow.

You may be able to reduce the deposit amount if you’re eligible for the Australian Government’s First Home Loan Deposit Scheme (FHLDS) or your parents are willing to go guarantor on your home loan (there’s more on this later). Don’t forget to save additional funds to cover settlement costs and your Lenders Mortgage Insurance (LMI) if you are borrowing more than 90% of your purchase price and are not eligible for the FHLDS.

Examples of minimum deposit amounts using average Perth property prices:

Purchase price

Minimum deposit of 5%

$600,000

$30,000

$550,000

$27,500

$500,000

$25,000

$450,000

$22,500

$400,000

$20,000

$350,000

$17,500

$300,000

$15,000

$250,000

$12,500

How can the First Home Loan Deposit Scheme help me?

The FHLDS is an Australian Government initiative aimed at helping eligible first home buyers get into a home of their own, sooner. The scheme provides a guarantee to the lender, that allows eligible first home buyers to purchase a home with a deposit of as little as 5%, without needing to pay LMI.

Find out more information, including eligibility criteria, for the FHLDS.

What is LMI and how does it impact a deposit?

Lenders Mortgage Insurance, or LMI, is like a safety net for the bank, because they're lending a significant proportion of value of the property that might not be recovered in full if something was to go wrong.

If your deposit is less than 20%, you will need to take out LMI or have a guarantor for your loan to protect the bank against any lending risk (unless you are eligible for the FHLDS). Your LMI premium will be added to the total of your loan, which is important to think about as your total loan including this premium can’t exceed 95% of the purchase price of the property. Depending on the price of the property you’re looking at, plus the cost of your LMI, you may need enough to cover all or part of the costs of LMI upfront as part of your deposit.

Does having a guarantor mean I might qualify for a home loan with less, or no, deposit?

Your parents can use their home, if they have enough equity, as security for your mortgage – also known as being a guarantor. The means you won’t need a deposit or be required to take out LMI.

There are a few things your parents will need to consider if they’re thinking about going guarantor for you, so make sure you read this article on becoming a guarantor.

What are the benefits of having a larger deposit? 

If you have a larger deposit saved, it can help in two ways. It can either reduce the amount of LMI you will have to pay or mean you may not have to pay LMI at all and, in some instances, it can also mean you may be eligible for a cheaper home loan interest rate.

Does it matter where I get my home loan deposit from?

At least part of your deposit will need to come from genuine savings to show that you are able to save, as this gives the bank greater confidence in your ability to pay back the loan. You can use money that is gifted to you, a bonus or inheritance, however you may need to show proof of where this money has come from and evidence of your savings habits over a three-month period.

What other costs should I consider?

Some loans may attract upfront fees, such as establishment fees, stamp duty, valuation fees, document fees or other government fees, depending on your financial institution or broker and the type of loan you’re taking out. These can vary based on the type of property you're buying, and even the location.

It’s important to know what to costs to expect, as you may need to cover them upfront on top of your home loan deposit, such as to cover LMI and settlement costs.

Have more questions?

We're here to help! If you’re ready to take the next step towards buying your first home, or for more information, call one of our Home Loan Specialists on 13 25 77, or get in touch with one of our Mobile Home Loan Specialists who can come to you any time.

 

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