How Much is Required For a House Deposit in 2018?
Tuesday, 26 December 2017 12:00 AM
If you’re looking to get started in the property market, there’s one burning question you’ll need to answer: “How much do I need to save for a house deposit?”
The very short answer is somewhere between 5 - 20% of the purchase price.
Let’s delve in deeper, as there are lots of factors involved. To start with, most banks will finance home loans of up to 95% of the purchase price. This is dependent on your ability to prove your employment history and savings record. Every bank is different, so it’s worth shopping around, or using a mortgage broker who can compare different loans for you. If you’re in a field like freelancing, that makes it hard to get a traditional loan, it’s worth knowing that there are always specialist mortgage brokers you can turn to.
Is bigger better?
When it comes to house deposits, the answer is a resounding yes. The more you save, the stronger your position when it comes to interest rates and repayment amounts. And if you can make the magic 20% mark, you’ll usually avoid paying Lender’s Mortgage Insurance (LMI). According to Canstar, there’s a lot of confusion in the market about LMI.
They explain it as:
“...an insurance policy that protects the lender from financial loss in the event that the borrower can’t afford to keep up their home loan repayments. The financial institution may make it a condition of borrowing that you pay for a lender’s mortgage insurance policy.”
How much this insurance costs depends on your individual circumstances – like your deposit amount, but usually it can be factored into your repayments so it’s not an up-front cost.
The good news for first home buyers
Even if you’re aiming for a deposit on the smaller side, there are some financial incentives to help those new to buying (or building) a home.
First home buyers grants: grants and concessions vary by state or territory. But what’s great news is that they are largely geared towards new home buyers: whether you’re buying off the plan or building from scratch.
Although it’s not available yet, the Australian Government has proposed a new scheme that allows first home buyers to save a home deposit within their super fund. Saying that, this could boost savings by up to 30% towards a first home. You can check the Treasury website for further updates.
Other costs to factor in
You should also budget for some extra costs on top of your deposit. The biggest one is stamp duty, which you may be able to avoid if you’re a first home buyer. If you’re building a new home, you can avoid building and pest inspection costs; otherwise you’ll need to factor these in. It’s wise to budget for a solicitor and removalist too!
Get saving sooner
There’s lots of advice around about how to save for a home deposit. But, whether you’re tossing up moving back home vs cutting out coffees – don’t forget to explore financial apps. Here’s a great roundup of money saving applications that can help you reach your savings goal faster and smarter.
Choose the best partners
Buying a house is probably the biggest purchase you’ll make. It pays to do your research before you commit hard-earned dollars. If you’re looking for a new home builder, online consumer reviews will provide a realistic picture of their reputation.
At G.J. Gardner Homes, we’re here to provide full support and guidance on your new home journey: whether this is your first home, or you’re an old hand. Part of our approach is providing a fixed price contract that gives you financial certainty around the cost and timing of your build. We can even help you through the finance process, as our G.J. Finance specialists work with a panel of 30 lenders.
Get in touch!