How much should you deposit if you want to purchase a property worth $500,000? $100,000? How about $50,000? Here’s the great news: You can go lower!
With the pressures of interest rates and the expensive cost of living, it’s quite hard to buy a property in Australia. But that doesn’t mean that it’s impossible.
Based on the latest PropTrack Home Price Index, “Australian home prices fell again in June, down -0.25%. Prices continued to decline in Sydney (-0.40%) and in Melbourne (-0.61%), while prices in Brisbane were down for the first time since April 2020.”
With the house prices trickling down, we’re now in a buyer’s market, so you have the upper hand! Here’s a tip: Know your options to make smart moves and stay ahead of the market.
Here’s a breakdown of your home loan options to help you finally deposit on your dream property:
What is a home loan deposit?
A home loan deposit is your initial payment for the property’s purchase price. The amount of your deposit depends on several factors, including your lender, financial circumstances and purchasing value of the property. To put it simply, the higher your home deposit is, the lower your home loan is.
You can easily estimate how much you can borrow with our borrowing capacity calculator.
How much should I deposit for a home loan?
Generally, lenders ask for 20% of the property’s purchasing price as a deposit. However, you may negotiate this with your lender based on your situation.
In certain circumstances, lenders allow a 5% deposit (sometimes, even lower) if you meet the eligibility criteria. If you want to get the right loan for your dream home, chat with our expert brokers for free, and we’ll negotiate it for you!
Standard Home Loan
A standard home loan usually requires you to deposit 20% of the purchasing price. This means that other hidden costs of buying a home are not yet included. Since loans are risky, lenders charge this high as a safety net.
In context, with the standard home loan, you should deposit $100,000 if you purchase a property worth $500,000. This doesn’t include other costs, such as stamp duty. It’s challenging to save a 20% deposit, but this option also comes with perks.
Here are some pros and cons of a standard home loan:
If you have trouble saving up 20% for your deposit, don’t lose hope because there are still other options that may match your situation.
Low Deposit Home Loan
You can deposit as low as 5% of the property’s purchase price if you choose a low deposit home loan. However, since this is a high risk for lenders, you may be required to pay the Lender’s Mortgage Insurance (LMI). LMI protects lenders and gives them the confidence to allow you to borrow up to 95%.
If your loan gets approved under this option, you can deposit as low as $25,000 instead of $100,000 for a $500,000-property. Banks and lenders are extra cautious with low deposit home loans, so this option comes with strict eligibility criteria.
To increase your chances of being approved for a low deposit home loan, you should have:
• A stable job
• Genuine savings
• A reliable income
• A good credit history
• A good financial standing
Can’t decide if a low deposit loan is for you? Here are some pros and cons you can consider:
If you’re worried about paying LMI with a low deposit home loan, the next scheme may be what you’re looking for.
Home Guarantee Scheme
The Home Guarantee Scheme is an Australian Government initiative to support eligible home buyers to purchase a home sooner. Under this scheme are:
• First Home Guarantee: First-home buyers can deposit as low as 5% without paying LMI. From 1 July 2022 to 30 June 2023, a maximum of 35,000 guarantees are available each financial year.
• Family Home Guarantee: Whether first-time buyers or previous owners, single parents can deposit as low as 2% without paying LMI. This means that you can deposit $10,000 for a property valued at $500,000! From 1 July 2022 to 30 June 2025, there are 5,000 guarantees available each financial year.
While the minimum deposits under this scheme are 5% and 2%, participating lenders may require more depending on your financial situation. Get in touch with us, and we may help you lock these deposit rates.
No Deposit Home Loan
No deposit home loans are available, but that doesn’t mean that there’s no ‘deposit’ at all. If you haven’t saved for a deposit, you still have options to secure your home loan, but you should meet stricter criteria to get approved. Here are two options for you:
• Guarantor home loan: One of your options is to have a guarantor. A guarantor is a direct or immediate family member (usually parents) who allows you to put the equity in their property as security for your home loan. This means that your guarantor is liable for your loan in case you fail to meet your repayments.
Depending on your lender and situation, you can borrow up to 100% of the property’s value. This option comes with risks, so lenders may require these from your guarantor before approving your loan:
1. Proof of savings
2. Good credit history
3. Equity in the home
4. A reliable source of income
• First Home Owner’s Grant: If you don’t have a guarantor, and you’re a first-time buyer, you may qualify for the First Home Owner’s Grant (FHOG). It provides one-time financial assistance to first-home buyers who meet certain eligibility criteria. The grant is funded and administered by the states and territories, so the amount and eligibility criteria vary per state.
You don’t have to worry if your savings are not yet enough to make your deposit. The great thing is you can use the grant as an addition to your deposit for your home loan!
Ready to make the first move?
With the different home loan options available to you and the property market favouring buyers, now may be a great moment to lock in the home you’ve been eyeing on.
If you want to secure the right loan for your dream home, chat with our lending specialists for free. We have strong relationships with over 40 banks and lenders, so you have plenty of choices for the deposit that is tailored to your financial situation and goals!
Have a question? You can always ask with just one click!
In line with the RBA’s recent interest rate hike, stay tuned for our upcoming blog about how you can combat mortgage stress.