Demystifying the Home Deposit Mystery: How Much Do You Need?
Saving up enough money for a home deposit is the first step towards buying your own home. But how much do you actually need to save? Is the amount the same for all home buyers? How much do you need for a house deposit?
The figure relevant to you depends on a number of factors. In some scenarios, applicants can borrow up to 95 per cent of their prospective property value leaving just 5 per cent for deposit plus purchase costs.
However, many banks and lenders recommend having at least 8 per cent plus purchase costs as a minimum saved up.
Why a Higher Home Deposit is a Good Thing
Having a higher home deposit will work in your favour for a number of reasons:
A large deposit shows that you are a great saver and could increase your chances of getting your loan application approved with prime lenders.
More deposit means borrowing less, which means there’s more chance of paying less interest over the life of your loan.
If your deposit is less than 20 per cent, you may need to pay Lenders Mortgage Insurance.
Here is an example of the deposit you’ll need depending on your house price purchase:
| House price | 5% deposit | 20% deposit |
| $450,000 | $22,500 | $90,000 |
| $650,000
|
$32,500 | $130,000 |
| $850,000
|
$42,500 | $170,000 |
| LMI required?
|
Yes | No |
How much is Lenders Mortgage Insurance?
Lenders Mortgage Insurance (LMI) is a one-off, non-refundable, non-transferrable premium that’s added to your home loan. It’s calculated based on the size of your deposit, loan to valuation bracket, and how much you borrow. These calculations are very important as they can cost you thousands of dollars in extra insurance.
LMI protects the bank against any loss they may incur if you are unable to repay your loan.
Let’s have a look at how much LMI you’re likely to pay if you have a deposit of less than 20 per cent:
| House price
|
5% deposit | LMI Estimate |
| $450,000
|
$22,500 | $14,364 |
| $650,000
|
$32,500 | $27,849 |
| $850,000
|
$42,500 | $36,418 |
The Queensland Government assistance schemes such as the First Home Owner Grant, HomeBuilder Grant, and the federal government’s First Home Buyer Deposit Scheme may also assist with your home loan deposit and help lower fees on the transaction.
So, with this information, how much do you need for a home deposit? The best place to start is to contact a professional mortgage broker. They can assess your income and savings to determine what price range you should be looking at to purchase and what your loan options are. This way you’ll know that your house deposit range and options are unique to you and you can start house hunting with confidence.
Other Considerations to Make When Buying a House
There are lots of other things to consider aside from a home deposit when you’re thinking of purchasing a house. These include a good credit score, your debt-to-income ratio, the types of loans available to you, and even the current interest rates in the country. Let’s tackle a few of these considerations.
The Importance of a Healthy Credit Score
When thinking of buying a home, aside from asking “How much deposit do I need for a house?” you must also assess your credit score. Your credit score is a numerical representation of your creditworthiness. Lenders sometimes use this to determine how much you can borrow and what terms as well as rates to give you.
A higher score can open doors to better mortgage rates and more favourable loan terms. Checking your credit score and rectifying any discrepancies before planning on buying a home is wise. If your score is lower than expected, consider paying off outstanding debts, ensuring your bills are paid on time, and avoiding multiple credit inquiries in a short period.
Checking Your Debt-to-Income Ratio
Aside from your home deposit, your debt-to-income ratio (DTI) is a vital financial metric utilised by lenders to evaluate a potential borrower’s capacity to manage and repay debts. It’s determined by dividing an individual’s total monthly debt obligations by their gross monthly income. The resulting percentage offers a snapshot of how much of a person’s earnings are allocated to servicing debts.
Exploring Different Types of Home Loans
Australian lenders offer a range of home loan options. Fixed-rate loans provide certainty with consistent monthly payments for a pre-determined timeframe, while variable rates might offer lower initial rates but can fluctuate month to month. Interest-only loans, where you only pay off the interest for a set period, can be tempting due to lower initial repayments but might cost more in the long run.
Know that your home deposit will also have an impact on which home loan types and features you can access. The bigger your home deposit, the more options are available to you.
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The Impact of the Reserve Bank’s Decisions
The Reserve Bank of Australia (RBA) also plays a pivotal role in the housing market. Its decisions on interest rates directly influence the rates offered by lenders. Staying informed about the RBA’s movements can help you anticipate potential rate changes and make informed decisions about your mortgage.
Strategies to Boost Your Deposit Savings
If you’re asking, “How much deposit do I need to buy a house?” chances are, you don’t have enough to widen your range of options. It might be a good idea to increase your savings, so you have enough money for a good home deposit amount.
Growing your deposit can be accelerated with the right strategies. High-interest savings accounts or term deposits can offer better returns on your savings. Consider pooling resources with a trusted partner for a joint mortgage. Additionally, gifts or inheritances, if available, can significantly boost your deposit.
Will the Home Deposit Amount Change in the Future?
Predictions suggest a steady growth in the Australian housing market, influenced by both domestic and global economic factors. As the market evolves, experts believe that the ideal home deposit size might shift, emphasising the importance of staying informed and adaptable.
Sunshine Coast Financial Solutions is Here for You
Understanding home deposits and all the intricacies associated with them is crucial for anyone looking to step onto the property ladder. With professional advice from our expert mortgage brokers here at SCF Solutions, you can navigate the property market confidently. Our team can help you make informed decisions, which can help pave the way for a secure home ownership journey and financial future.
