One of the most common questions for first home buyers is how much deposit they need to buy a home. While it sounds simple, there are some important definitions first home buyers must know to ensure they are fully equipped to make the right decision on their first home.
The most common answer to the question ‘How much deposit do I need to buy a property’ is at least 20% of the purchase price of the property. So, if you are buying a $600,000 property in Victoria, does that mean you need to save $120,000? Well, not exactly.
The 20% amount comes from most banks allowing clients to borrow up to 80% of the property value and avoiding the need to pay an additional risk fee called lenders mortgage insurance, which is charged when you borrow above 80%. But even this 20% figure doesn’t tell the whole story. When buying a property, you don’t just need to cover the cost of the property; there are other costs involved. These include:
That’s a lot of fees. As an example, if you are buying a property in Victoria for $600,000 and don’t qualify for any First Home buyer grants or concessions, you would need to come up with around $35,000 to cover all the fees required to complete settlement.
So using the previous example, if you assumed you only needed to contribute 20% of the purchase price to avoid paying mortgage insurance, once you factor in the fees you would need to borrow around 85% of the property value which could see you have to pay $7,000 in LMI.
The point of this example is to avoid any confusion. Home buyers need to speak with one of our mortgage brokers at Acceptance Finance who can provide a clear summary of any purchase scenario you have in mind.
If you’ve been researching home loans, you would have come across these two acronyms – but what do they mean?
We understand the struggle for many first home buyers to save enough to even consider buying a property. So it is common for first home buyers to want to know what the lower limit of savings would be in order to get them into a property. While the answer should be tailored to each individual situation, here are some common scenarios:
This is a common pitfall that first home buyers can face if they don’t get the correct advice on how to structure their loan application.
It’s important to understand that the deposit you agree to on a property contract is usually a different amount than the contribution amount you are required to pay to complete the property purchase. When negotiating on a property and you are borrowing above 95% of the purchase price, you may need to either:
It’s important to understand that any funds a bank is providing for a property purchase will be available at the settlement of the property/loan, not before to cover when the deposit is due.
So while ‘how much deposit will I need to purchase a property’ may seem like a simple question, it does carry some complexity given the multitude of lender options available to first home buyers. This is why it’s important to partner with one of the first home buyer expert brokers at Acceptance Finance who have helped hundreds of clients through this process.
