Thinking About A House Deposit

When buying a home for the first time, one of the first questions people ask is, “How much do I need for a deposit?”

The amount you need for a deposit will depend on the lender and their lending criteria. Some lenders may allow home buyers to borrow 90-95% of the value of their home, so they would only need to save a 5% deposit, or as little as $25,000 for a property worth $500,000. Other lenders may have other criteria and demand more.

While you may be keen to get into your own home as soon as possible, there are reasons to aim for a bigger deposit. One is that it means you need to borrow less money overall, so your monthly repayments will be lower.

Paying a large deposit on a loan can mean that you pay less interest over the life of the loan, reducing your overall cost by paying less interest. Lenders will also see you as less risky, so you could be offered a lower interest rate from the beginning.

Typically, your home loan deposit is a cash deposit. However, some lenders may accept other forms of deposits.

The First Home Owner Grant can be used as a deposit on a home.

The first home owner grant could count towards your deposit. If you’re unsure if you’ll be eligible, we have a handy explanation of the first home owner grant that might help you decide.

To secure a home loan, you may need a guarantor.

Another option for securing a home loan without a deposit is to use a guarantor. This is where a family member uses the value stored in their house as guarantee against all or part of your loan. This can put both of you at risk if you don’t meet repayments, so it’s important to carefully consider if having a guarantor is right for you.

You may be able to get a loan approved by a lender by having friends or family make a cash gift to your savings.

Lenders Mortgage Insurance (LMI)

A deposit of 20% or more is usually enough to avoid paying what’s known as ‘Lender’s Mortgage Insurance’ (LMI). This protects the lender if you cannot repay your loan, so it’s worth avoiding if possible.

Loan to Value Ratio (LVR)

Loan to Value Ratio (LVR) is a common term used in reference to home loans. It refers to the amount that you want to borrow, as a percentage of the value of the property.

For instance, if you borrow $400,000 to purchase a property valued at $500,000, your LVR will be 80%. This means that you don’t have to pay LMI. We also have a more comprehensive explanation of LVR if you’re interested in calculating what yours could be.

The paperwork required for a home loan

When you apply for a home loan, you’ll need to gather some documents.

Your My LMI Group broker will ask to see proof of your identity plus a few other documents including;

• Bank statements, to show you really have savings

• Recent credit card statements

• Your most recent PAYG summary or ‘group certificate’, and

• Your two most recent pay slips.

If you are building a new home, you will need additional paperwork, as well as some information about your company if you are self-employed.

If you have questions about this, you can contact your local My LMI Group broker, who can help you with paperwork and look at your deposit situation.