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How Much Deposit Do I Need to Buy My First Home?

clock icon February 16, 2017
tag iconHome Buyer Home Loans Savings & Deposits

We’ll help you answer that age old question – what kind of deposit do you really need when buying your first home?

Owning your own home is a dream for many Australians but when it comes to saving a deposit, what is the right amount needed to successfully purchase your first home?

First home buyers have a few different options in securing a home loan but the bottom line is: the more money you have in the bank, the more options you will have.

There is no secret number

Yes, ideally you will want to save at least 20% and the average first home buyer will do so. It helps with saving some costs.

BUT, many people believe this is the be-all and end-all. Please, do not be discouraged. There is no magic number for how much deposit you need upfront. The ideal deposit for one person may not be the ideal deposit for you.

Also, there’s no one size fits all approach as the deposit amount required will be determined by each lender and their criteria. If you want some help discussing what your magic number is, our friendly and accredited mortgage brokers can help you.

Be aware of too little

You may have noticed headlines about how it is getting harder to get a home loan. Make sure you understand lending criteria to put yourself in a better chance of being eligible.

Got a 5% deposit? Many lenders are generally willing to finance home purchases of up to 95%, provided you have a very strong employment history and savings history and evidence of genuine savings.

However, if your loan-to-value ratio (LVR) is over 80% you’ll be considered high-risk and will most likely need to take out Lenders Mortgage Insurance (LMI).

The LVR is your loan amount divided by the cost of the property. For example, if you have a $25,000 deposit for a home worth 500,000, you will be asking to borrow $475,000; so, your LVR will be 95% and LMI will be required. Keep in mind this product is designed to protect the lender, not the borrower.

Don’t forget the additional costs

It’s important to remember that you will need additional money to cover your purchasing costs, such as stamp duty and legal fees, which usually adds up to an additional 5% of the purchase price.

To avoid paying extra for insurance, it’s recommended that home buyers aim to have a 20% deposit plus costs.

Benefits of a larger deposit

No Mortgage Lenders Insurance

Home buyers with a deposit that is less than 20% will most likely need to take out Lenders Mortgage Insurance (LMI). As a general rule. This is a one-off payment which can be paid as lump-sum or added to your loan.

Savings on interest

Always remember – the bigger your deposit, the less you will need to borrow. This can mean significant savings in the total amount of interest you will pay over the life of the loan.

Improve your chances of being approved for a loan

Having a deposit ready to go provides evidence of regular savings, making you a greater candidate for the banks.

If saving a 20% deposit isn’t realistic for you, get in touch with a mortgage broker near you about other options.

Did you know that courses exist for first home buyers? You could learn about the home loan process and deposits straight from an expert.

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