What savings do you need for a house deposit?
The size of your deposit is an important factor in getting a good mortgage, or even being approved for a mortgage at all. The bigger the deposit you have saved, the less you have to borrow from the bank, which will give you better flexibility with your lender.
Having a minimum 20 percent of the purchase price as savings for a house deposit is seen as the ideal deposit by the banks and will also mean you will avoid paying mortgage insurance.
However the most bank lenders will let you borrow is typically up to 95 percent of the purchase price leaving five percent deposit plus up-front costs.
For example, if you purchase a house for $500,000 a minimum 5 percent deposit will be $25,000 plus you will have the extra costs of mortgage insurance on your home loan.
Alternatively, you could spend years to save up 20 percent of the purchase price of $100,000 to avoid lenders mortgage insurance.
Reasons to save a more for a house deposit
- The bigger the deposit the smaller your loan repayments will be, reducing the time in which you can pay your mortgage off.
- You will be considered less risky if you own more of your home as you will be less likely to fall into negative equity. This means you owe more on your mortgage than your property is worth.
- As a buyer with a bigger deposit you will be offered better mortgage deals. A larger deposit will make you less risky for mortgage lenders and they’ll generally offer you more competitive mortgage deals with lower interest rates.
- All lenders have different affordability checks to work out what you can afford based on your income and your outgoings. From a lender’s point of view, if you only put down a small deposit it’s more likely you will fail these checks because you’ll need to spend more on your mortgage each month.
What is mortgage insurance?
If your deposit is less than 20 percent of the purchase price mortgage insurance is usually required. This protects the lender not the buyer in the event you can’t repay your loan. So if possible it is best to avoid it with a bigger deposit.
Mortgage insurance is generally paid as a one-off non-refundable charge made prior to settlement or added to your loan repayments spread out over time.
There are also other up-front costs you need to consider when you’re doing your sums to work out how much savings you will need to buy your own home include:
- Conveyancing and legal costs
- Government fees including stamp duty, although this can be included in the loan
- Title search and registration fees
- Pest and building inspections (typically about $500)
- Home building insurance prior to settlement, and possibly contents insurance when you move in.
Can I access first homeowners grants to contribute to my savings for a deposit?
If this is your first step onto the property ladder you might be eligible for the First Homeowners Grant, (FHOG). This can be a real helping hand in financial support for first time buyers.
It is a one off tax-free payment to first home buyers in Australia. Definitely worth researching and seeing if you qualify for any government grants and concessions. Information on the Victorian First Home Owner Grant Fund is available here.
To get a good mortgage rate it is wise to save as much as you can, and while most lenders recommend 20 percent of the purchase price, you can certainly get a mortgage with a five percent deposit from your chosen lender.
If you are having trouble saving for a deposit don’t feel bad, it’s hard for everyone. That is where BuyAssist can help ease the financial burden of having to spend years saving a deposit by providing equity support equivalent to 25 percent of the purchase price. This means you don’t need the 20 per cent deposit and only borrow 75% of the property price from the bank lender. This is how BuyAssist is helping you get into your home sooner and means you don’t need large savings for a house deposit.
When you’re ready to take your first step onto the property ladder BuyAssist could help make it a reality for you.
Am I Eligible for BuyAssist homebuyer fund support?
To see if you’re eligible for the BuyAssist homebuyer fund support, or for more information you just need to Register with us at no cost or obligation and let BuyAssist see if we can help you to bridge the gap between saving for a deposit and your first home with little or no deposit.