Buying a home is exciting, no doubt, but there’s always that one question that pops up: “What about the mortgage deposit?”
At Sunshine Coast Financial Solutions, our team of professional finance brokers can provide you with the exact information you need, whether it’s about mortgage deposits or lender requirements as well as navigating the complexities of home loans.
In this blog, we’ll provide you with a comprehensive guide to understanding mortgage deposit requirements, the different kinds of loans and how they impact deposit amounts.
Requirements for Mortgage Deposit
A sizable home loan deposit is crucial to the home loan application process because it indicates your commitment to buying the property to the lender and being able to pay off the mortgage. Your deposit makes up the initial payment on your mortgage when you purchase a property and reduces the amount you need to borrow. The standard deposit lenders prefer is around 20% of the property purchase price, however, with Lenders Mortgage Insurance, you can apply with a lower percentage deposit.
Types of Mortgage Deposits
Standard Mortgage Deposit
Lenders typically require a 20% deposit, which offers several advantages including no Lenders Mortgage Insurance (LMI) and greater initial equity. LMI protects the lender if you default on your loan and is generally required for deposits less than 20%. The cost of LMI varies depending on the loan amount and deposit percentage.
Low Deposit Home Loans
While a 20% deposit is ideal, many buyers find it challenging to save such a large sum. Low-deposit loans are available but they often require LMI. If you’re considering a low-deposit loan, it’s important to factor in the potential cost of LMI that will be rolled into the mortgage.
Several government schemes and grants, like the First Home Buyer scheme and the Regional First Home Buyer Guarantee, can also help you get into the market with a smaller deposit. Guarantor loans, where a family member uses their home equity as security, are another possibility. Want to explore these options? A chat with a professional mortgage broker can help you find the right solution for your situation.
No Deposit Home Loans
No deposit home loans are extremely rare and in its place, guarantor loans are allowed. They allow you to purchase a property without paying a home loan deposit. These loans became more popular during the early 2000s. Compared to traditional loan options, you will be subjected to stricter eligibility requirements because there is no proof of your financial responsibility and capability in regular monthly repayments.
Lender requirements often include:
- Credit history: You need to prove you have a track record of paying your debts on time as this can improve your credit score.
- Stable employment and income: Stable income and employment will help you prove to your lender that you have the ability to pay off your loan.
- Lenders Mortgage Insurance (LMI)
Tips for Saving A Mortgage Deposit
- Create a budget and stick to it: Make a budget and remain consistent in sticking to it. Allot appropriate amounts for all your needs and allowances.
- Reduce unnecessary expenses: Eliminate expenses that are unnecessary or that you can do without for now.
- Exploring additional income streams: You also may want to explore having an additional income source, such as a second job or moving companies for a bigger full-time salary.
- Setting realistic savings goals: Set your savings goal; it has to be an amount you can save every month. If you are driven, you may also want to set aside money for your emergency fund, which consists of 4-12 months’ worth of your living expenses.
- Automating savings transfers: There are bank accounts with automated payment savings transfers. With them, you have the option to schedule in advance automatic transfers at certain times, like every fortnight, weekly, or monthly.
Let Sunshine Coast Financial Solutions Help You
The team here at Sunshine Coast Financial Solutions can help with all your home loan needs and understanding exactly what you need for a home loan deposit. Contact us today!
Meet Chris Wilson, the heart of Sunshine Coast Financial Solutions (SCFS). With over a decade of experience in finance, Chris started his journey as a broker with Aussie Home Loans in 2009. His dedication earned him the title of Rookie of the Year in 2010. By 2011, he was ready to build a business based on trust and strong partnerships.
