Home deposit mastery
There is no magic number when it comes to a home loan deposit, however in Australia the majority of lenders require you to have saved 10% of the property’s value (a couple of lenders may only require 5%). This means if you’re looking to buy a house with a value of $800,000, you’ll need a deposit somewhere between $40,000 and $80,000.
You’ll also need to account for added costs such as solicitors’ fees and government charges on top of your deposit. And in many cases, stamp duty. You can read UNO’s comprehensive guide to stamp duty here.
Terms to know:
- Genuine savings
- Loan-to-value ratio
- Lender’s mortgage insurance (LMI)
How much money should I have saved to buy a house?
As humans, we have a tendency to want things right now. It’s called instant gratification. And while buying a home as soon as the idea enters our heads would be gratifying, the fact of the matter is good things come to those who wait. Before attempting to buy property for the first time, it’s a good idea to have saved a lump sum of at least 5% of the value of the home – plus extra savings you may need for stamp duty, conveyancing fees, mortgage registration and transfer fees.
So, if the property you want to buy is valued at $650,000, you’ll need at least $32,500 plus extra savings for the other costs. Or, another way to do it, is to look at how much you’ve saved and then work out the value of the properties you can afford to buy. You can do this using our how much can I borrow calculator or you can speak with one of our UNO experts.
Do I need a deposit to buy an investment property?
When it comes to investing, lenders tend to be more rigid than they are with owner occupiers. Most require a deposit of at least 10% of the property’s value.
UNO can help you identify the best home loan deal for your circumstances from a large panel of lenders, so you don’t pay any more than you should to borrow funds for an investment property. UNO also helps property investors by ensuring your loans are structured in the best way for you and will even liaise with your financial adviser if requested.
How much can you borrow against the equity in your home?
Theoretically, you can borrow up to 80% of the equity in your home (some lenders will let you borrow up to 90%) however your income, capacity to pay back the loan and other factors may reduce the overall amount. You can use the equity in your home for a number of different reasons, such as renovations, a new car, a holiday to Ohio. You can also use equity to consolidate debt, adjust your loan term, switch from a variable rate to a fixed rate, or vice versa, and to access different home loan products.
To find out how much equity you have in your home, you’ll need to have a property valuation. If your home is valued at $500,000 for example, and you owe $100,000 on your mortgage, you can likely borrow around $320,000 (80% of $400,000).
How can I avoid paying LMI?
Lenders Mortgage Insurance (LMI) is a type of insurance that lenders take out to protect themselves in case the borrower defaults on the loan. Lenders usually charge the borrower a one-off fee to cover this insurance if the amount borrowed is more than 80% of the value of the mortgaged property. But this can be capitalised (incorporated into the loan amount) and the extra amount added to your monthly repayments.
You can avoid the extra costs of Lenders Mortgage Insurance (LMI) if the amount you have saved is more than 20% of the value of the property.
How can I buy a house with no deposit?
There are instances where you can buy a house with no deposit. You will need to qualify for a guarantor loan.
A guarantor is usually a family member who is legally responsible for paying back the entire home loan if the borrower cannot or will not make the loan repayments. The guarantor will also have to pay any fees, charges and interest. If you have a direct family member who can act as guarantor and use their property as guarantee, you may be eligible for a guarantor loan.
A rule of thumb is, the smaller your deposit, the more rigid the regulations are on it. If you’ve only got 5%, it has to comprise “genuine savings” – i.e. it’s not dependent on your brother selling his car, or a loan from a friend. These are the things that make lenders nervous. Your deposit will affect how much you are able to borrow from your lender. Money from a parent or third party is known as a gift and not considered genuine savings.
If you’ve got 10% or more, a gift (from a parent, for example) can be part of it. The bigger the amount, the more options you’ll have for your home loan.
When UNO works out your borrowing power, we consider your serviceability (broadly defined, your ability to meet loan repayments based upon the loan amount, your income, expenses and other commitments) and your deposit. There is often a discrepancy between the two. A borrowing calculator might tell you you can borrow $900,000, whereas your deposit will suggest you can only borrow $400,000. A UNO adviser can help you find a more accurate figure using both these equations.
Read more about guarantor loans and how to get a home loan with no deposit.
How much money should you save each month?
If you’re hoping to buy property in the next few years, you should start saving early. There is no magic number when it comes to how much you should save: it will depend on your income, your lifestyle, and where you can afford to cut costs.
For some budgeting tips and savings ideas, read: How first homeowners can have their avo – and eat it too and check out the table below.
Does rent count towards my deposit?
One of the biggest problems for wannabe home buyers today is saving enough money for a home deposit while continuing to pay rent. The good news is some lenders hold the view that if you can pay your rent consistently and on time, then you’ll be able to pay a mortgage consistently and on time too.
It depends on the lender, however in this situation if you are borrowing more than 80-95% of the value of the home, you will need to show 5% genuine savings held for at least 3 months in a bank account. (The other 5-15% could come from a gift from your parents or another generous party, the first home owners grant, or inheritance, for example).
If, in place of genuine savings, you only have a gift or inheritance, the first home owners grant, or you sell some personal belongings to use as your deposit, and the funds haven’t been in your account for the required 3 months, some lenders will accept 12 months of confirmed rent by way of tenant rental ledger from a real estate agent.
In other words, showing 12 months of rent cannot be used in place of a deposit, but it demonstrates consistent behaviour to the lender and can strengthen your application if you don’t have 5% in genuine savings.
What do you need to buy a house for the first time?
Those wanting to buy their first home have to deal with loan applications and real estate agents for the first time, as well as associated administrative, financial and legal checks and paperwork.
For a more in-depth look at what’s required, read What do you need to buy a house for the first time? And speak to a UNO adviser about your home loan options.