Buying Your First Home With 5% Deposit

It can be hard to save for a deposit on your first home if you’re already paying rent, but don’t give up! There are solutions that can help you get into a place of your own even when your deposit is smaller than average.

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Buying Your First Home With 5% Deposit

We know that saving up to make a first home deposit isn’t always easy, especially when you’re already paying rent on somewhere to live. But don’t give up on your goal of buying a first home! There are solutions that can help you get into a place of your own even when your deposit is a little small.

The Myth Of A 20% Deposit

Lenders usually require that you make a deposit of at least 20% of the property’s purchase price.

While a 20% deposit is normally required by mortgage lenders, some may offer loans of 90% or even 95% of the property’s value, which means you could potentially get into the market with a deposit of 10% or even 5%.

What You Need To Know?

The loan-to-value ratio (LVR) is a measurement used to gauge the risk of a borrower defaulting on an asset. A high LVR means that you owe more to the bank than you paid for the house itself. We have an in-depth explanation of LVR, but the main takeaway is this — if you have a high LVR, you pose a greater risk to the lender.

If your loan-to-value ratio (LVR) is higher than 80%, you are likely to be charged Lenders Mortgage Insurance (LMI). This protects the lender from risky loans held by borrowers with low deposits. The only way to save costs on LMI is to put down a deposit over 20% — hence, the 20% rule.

For some people, an option with a lower initial deposit and paying LMI (lender’s mortgage insurance) might be the best choice. However, this could mean more expenses, so it’s important to consider your unique circumstances before making a decision.

Accessing Your Credit Score

When you have a very small deposit—between 5 and 10 percent—the lender and LMI insurer will thoroughly assess your credit history. Any problems with your application may prompt a “please explain” from LMI. It’s critical to ensure that you have all the necessary paperwork in order before applying for a home loan. Your local My LMI Group broker can help you organise this paperwork.

Grants & Upfront Costs

When buying your first home, there are a number of costs associated with the purchase. These include stamp duty, conveyancing fees, removalists and council rates. If you are unsure about what these additional expenses will be, we can help you work it out.

First homebuyers may be eligible for the First Home Owner Grant or stamp duty savings. It is also worth doing some reading to see if you are eligible for schemes which may help you out financially.

My LMI Group brokers are ready to help you get into your first home with the HomeStart and Keystart programs, which provide low deposit loan options. Our suburb finder map could help you find affordable rental properties in the area you want.