Deposits and Home Loans

How much deposit do I need for a home loan?

You’ll have to raise a sizeable deposit for the majority of home loan products. Where this money comes from matters just as much as the size of the deposit.

| | 4 minute read

Raising a deposit is probably one of the biggest challenges you’ll face when buying a house. Many lenders require a 20% down payment, which is a considerable challenge given the cost of living, sluggish wage growth and sky-high property prices.

If you can save this amount over time, then it will put you in a strong financial position. Some lenders will offer lower interest rates for larger deposits as you present less risk to them. The more money you can put into your property the better; it can mean lower monthly loan repayments, a shorter loan term and less in interest over the life of the mortgage.

Should you not be able to provide a 20% deposit, you will generally have to take out Lender’s Mortgage Insurance (LMI). This one-time fee is an insurance premium that protects the lender in case you default on your loan, and the property is sold for less than the outstanding debt on it.

Often this amount can be added on to the loan itself so it’s not an upfront cost. However it is worth considering how much more interest you will pay on your mortgage with a small deposit (so larger principal) and the cost of LMI added on. It’s a good idea to save as much as you can to avoid having to pay mortgage insurance.

Can I get a home loan with a 10% deposit?

If you choose to pay mortgage insurance, you can generally access a home loan with 10% of a home’s value as your deposit. For example, you would need a deposit of $50,000 for a $500,000 house.

If you’re an investor, it’s likely that you’ll need a minimum of 10% to cover the deposit. However, those in particularly strong positions may be able to access loans with a loan to value ratio (LVR) of over 90%.

How can I get a deposit for a house?

Most lenders require your deposit to come from ‘genuine savings’, as this demonstrates responsible financial management and boosts confidence in your ability to repay the loan. Usually this is money you’ve placed into a personal savings account – registered in your name – over a period of at least three months.

Some lenders will accept ‘genuine savings’ from other sources, such as:

  • Tax refunds;
  • Inheritance;
  • Monetary gifts;
  • Money raised through the sale of shares or assets.

Can I get a home loan without a deposit?

The only way to avoid paying a deposit is if you use a guarantor. This is somebody who puts up their own property as the security on your loan. Usually guarantors are the parents of the borrower.

In this case you do not need a deposit or LMI, but you place your guarantor at risk if you default on your loan repayments. Therefore it’s important to understand the risks involved with a guarantor home loan. 

Can I use equity for a deposit?

Current homeowners will build equity in their properties as they make repayments on their home loan. Equity represents the amount of the property that you own. For example, if you have $150,000 left to pay on a $400,000 loan, you have $250,000 in equity.

You can use your equity in place of genuine savings for a deposit, assuming you’ve built enough equity to cover the cost of refinancing. Remember that you have to cover the rest of your original loan before you can take out a new one.

Still, you can use whatever remains as a deposit on a new property. Some lenders will even take negative gearing into account when they work out how much money you can borrow.

What other buying costs are there?

In addition to the deposit, you also need to raise money to cover the fees associated with buying a house. There is also stamp duty and legal fees. Many lenders also charge fees for processing your home loan application. This can add thousands of dollars to the amount you need to buy the home.

Fortunately, you may be able to access some government schemes to help you cover these costs. For example, the First Home Owners Grant (FHOG) offers thousands of dollars to some first-time buyers and can usually be put towards these costs or to your deposit. Also, many states have their own incentives for first-time buyers, such as waiving the stamp duty.

What to do next

  • Use our calculator to work out how much you could borrow with different deposit amounts.
  • Live chat with one of our mortgage brokers.

With Alexi Neocleous

This information is general in nature and you should always seek professional advice when making financial decisions.

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Caroline Roberts

Caroline is a freelance writer and editor for the business, finance and not-for-profit sectors. She has written extensively on financial matters and has 10 years' experience working as a communications professional within financial services.

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