Saving enough money for a home deposit is the Holy Grail for first-home customers. Often, the culmination of years of squirreling away every spare dollar you earn, reaching that focus on amount is no small achievement. But, in today’s market, how much do you need really? Do you need a 20% deposit? Or will lenders let you in the door with less substantially?
Given the attention that has recently been paid to the bank royal commission rate and increased financing costs facing the banking institutions, you’d be forgiven for considering the response to that last question is “no, they won’t”. But fund specialist John Tindall, from Accumulus MORTGAGE LOANS in Sydney, says that “despite all lenders tightening their lending requirements, you may still find lenders who require only a 5% deposit”.
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Here’s what you need to know. How much deposit do you will need before nearing a bank? You might normally need to put down a deposit that is equal to at least 5% of the sale price to buy a house. For banks, that’s usually the lowest deposit they’ll entertain – although some will require significantly more.
25,000, which is far less than many prospective buyers to imagine their deposits will need to be. That said, “new buyers often forget that they’ll also need funds for stamp duty, lenders mortgage insurance (LMI) and professional fees such as conveyancing,” says Tindall. Used to mitigate the chance of lending money to someone with little cost savings, the one-off LMI charge is generally put on borrowers with a deposit that’s less than 20% of the purchase price.
“However,” says Tindall, “there are a few important exceptions to the rule of thumb. The one-off LMI fee depends on the total amount being borrowed. “At 95% for a family group home, LMI can truly add up to 5%,” says Tindall. “In recent years, clients who’ve made a decision to pay it and secure their house have since seen values rise by over 20%. Not good if you missed out! It could be added onto the loan, meaning you have 30 years to pay it back,” Tindall says.
17,000 for residential buyers. “Different lenders discuss different LMI premiums and it can be worthwhile to shop around. A home loan broker can help with this,” he provides. And LMI is far from the only ‘hidden’ cost involved in buying a house. Is a first-home buyer better off saving for a bigger deposit?