This question often gets asked of us as brokers along with the stock standard questions of, “How much can I borrow?” and “What’s your best rate?”.  The answer to all of these questions is “It depends on a number of factors”. 

But to get back to the question at hand, how much deposit do I need, let’s unpack some of the variables. 

 

Standard Purchase

To avoid lender’s mortgage insurance the minimum that you would normally require for a purchase is 20% of the purchase price + costs. The Costs are made up of Government stamp duty and fees (these vary from state to state), legal costs, and lender fees. 

Without First Home buyer concessions, as a guide, you should allow for around an additional 5% of the purchase price in savings to cover costs. 

As an example, a purchase in NSW:

Purchase price:              $800K

Costs:                              $  40K  (Estimated Stamp Duty/Legals/Fees etc)

Loan:                               $640K

Savings (20% + costs)  $200K

Total outlay:                   $840K

The other option if you are finding saving 20% long and hard, particularly if you are trying to rent at the same time, could be to borrow with less savings with the assistance of Lender’s Mortgage Insurance. This Insurance comes at a cost to you (normally added to your loan balance) and offers the Lender protection should they need to sell your property in a worst-case scenario and must cover a shortfall in the value. 

While the cost of the insurance can be quite significant and is added to your repayments this needs to be weighed against the benefit of a lower deposit and purchasing sooner. 

As an example, a purchase in NSW:

Purchase price:           $800K

Costs:                           $  40K (Estimated Stamp Duty/Legals/Fees etc)

Loan:                             $ 784K ($755K + $29K LMI Premium)

Savings (5% + costs)  $ 85K 

Total outlay:                 $869K

 

First Home Buyers

With a saved deposit of 5% plus costs, you may be able to purchase your home under the First Homeowners Guarantee Scheme (refer below) if you are eligible or you will need to pay for Lender’s Mortgage Insurance as described above. 

Currently, the Federal Government has a scheme called the First Home Guarantee which offers those with 5% savings the opportunity to purchase a home without the need to have the added cost of Lender’s Mortgage Insurance. They provide a Guarantee for the 15% deposit to reach that safety mark of 20% equity for the Banks.

As an example, a purchase in NSW:

Purchase price:          $800K

Costs:                            $     5K (Estimated Legals/Fees etc- Stamp Duty Exempt as a FHB)

Loan:                            $760K

Savings (5% + costs) $ 45K (incl Costs $5K)

Total outlay:                $805K

 

The deposit required can be as little as 2% if you are an eligible Single parent or guardian with one dependent. 

There are income and property price eligibility criteria that need to be met to qualify for the scheme. 

Further information and eligibility tools can be found here.

https://www.housingaustralia.gov.au/support-buy-home

 

Equity in your current property

You may have a current property with a mortgage and are looking to purchase an investment property. Instead of accessing your savings, you could access the equity in your property to allow you to borrow 100% of the purchase price of the new property + the associated costs of the purchase if the equity in your current home allows. 

For example, if your current home was valued at $800k and you currently owe $400k you would have $240k to use as equity for a new purchase- this would be 20% of a $1mil purchase as an example with $40k to assist with costs.

 

To discuss your personal circumstances please call Paul on 0450573336.