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Deposit Required For A Home Loan

Computing for your home loan deposit

Are you beginning to put together your deposit but not 100% sure how much you need? Well, you’re not the only one.

Securing your home loan is no easy feat, and that’s why brokers at Lendstreet work diligently to provide prospective home buyers with all the information they need.

We tailor our approach to you with guides to help you make informed decisions. In this article, we’ve provided everything you need to know about home deposits, how much you’ll need to save, and what other fees you may face along the way.

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How Much Do I Need To Deposit?

To secure your home loan, you’ll first need what is known as a cash deposit. This cash deposit represents a percentage of the property you want to buy. You, the borrower, cover this percentage and the lender (bank or building society) covers the rest with your home loan.

Generally, lenders require you to have a deposit that is 20% or more of the property price. This means that the majority of lenders will lend you up to 80%. As an illustration, a property valued at $500,000 will require a deposit of $100,000.

If you’re wondering how your current savings and budgeting plans may be affected by this, you can make use of our Deposit Planner Calculator. You can use this calculator to plan your weekly, fortnightly, or monthly payments and expenses.

What If I Have A Smaller Deposit?

We usually get asked at this point at Lendstreet, can I use a smaller deposit to secure my home loan? This is a great point, as we understand $100,000 is a lot of money to save up, especially as a first-time buyer!

Many lenders also understand this, allowing prospective homeowners to borrow more than 80%. In fact, depending on the market and the value of your desired property, some lenders may offer home loans of 90-95%.

So, what’s the catch? Well, smaller deposits are seen by lenders as risker ventures. This means that there’ll be extra fees and charges applied.

Lenders will also conduct a more thorough credit score check, so if you’re planning on a smaller deposit, you’ll need to have all your finances in order. This will include checks on debts, expenses, and monthly payments.

What Can I Do To Improve My Ability To Get A Loan With A Smaller Deposit?

If you’re trying to secure a home loan with a deposit of less than 20%, several tips can help you. These include:

  1. Reducing your debt levels. By making sure that all your debts have been paid, you’ll
    be owing less, putting you in a better position for a home loan. This will also help you to
    start putting more money towards your deposit.
  2. Start saving early. The earlier you start saving, the more you can show your lender your financial discipline. Lenders want to know if you can budget in order to make all the repayments in time.
  3. Lower any credit card limits. When applying for a home loan, your lender will check the total credit limits on your accounts. The higher they are, the riskier you’ll appear to the lender.
  4. Watch your expenses. If you want to start saving for your deposit, it’s time to start
    trimming your expenses. Ask yourself whether you need that takeaway or the latest
    iPhone. Instead, put that money into your home loan plans.

Lenders Mortgage Insurance (LMI)

When you borrow more than 80% from a lender, you’ll need to pay Lenders Mortgage Insurance (LMI). LMI is a type of insurance that protects the lender, not the borrower (you). 

The amount you borrow from a lender in relation to your property’s value is known as the Loan to Value ratio (LVR). Having a higher LVR means you owe more compared to the deposit you’ve put down.

The LVR is what is used to calculate whether you’ll need to pay LMI. Hence, a ratio higher than 80% will mean LMI charges will be added to your home loan.

How Does LMI Work?

As a type of insurance for the lender, LMI is used in case the borrower is unable to make the loan repayments anytime down the line. So, if the borrower can’t make the payments, the lender will need to sell the property for a lower price that was still owed on the home loan.

Consequently, the LMI will kick in to shortfall the debt.

How Much Does LMI Cost?

The cost of LMI will depend on a number of factors. Firstly, each lender will calculate your risk differently. Secondly, the lender will base the LMI on the value of your desired property, your exact deposit amount, and the total home loan amount needed.

There are some other factors that might also affect the cost of the LMI, but you’ll need to speak directly with your lender. If you prefer to talk to a broker first at Lendstreet, we can walk you through everything you’ll need to prepare.

How Do I Pay LMI?

Depending on these factors, you’ll be able to pay the LMI upfront or add it to the home loan amount (on top of your monthly repayments).

Keep in mind if you refinance anytime down the line, a new LMI policy will more than likely be required.

First Home Owner Grant (FHOG)

If you’re a first-time buyer, there is a great opportunity to benefit from government buying schemes and potentially avoid paying LMI on your first home loan.

The First Home Owner Grant (FHOG) is a one-off payment from the Australian government to assist first home buyers. The grant equals $10,000 and can contribute to your lender’s LVR calculations.

This means that the $10,000 can be used as part of your deposit, allowing you to avoid paying LMI potentially. Only one grant is payable per home loan transaction, which means that two or more people purchasing a house together will only receive one grant.

Am I Eligible For A First Home Owner Grant?

The Australian government does not means-test, so your income will not affect your chances. To be eligible for this grant, you will need to meet the following eligibility criteria:

  1. Must be 18 years or older.
  2. One applicant must be an Australian citizen or permanent resident living in Australia.
  3. Cannot have a first time home owner grant previously.
  4. Never owned residential property anywhere in Australia before July 2020
  5. The home you purchase must be your principal place of residence for at least 12 months after home loan settlement.

Do you think you’re eligible for the First Home Owner Grant? Then why not get in touch with a mortgage broker at Lendstreet, and we can walk through the eligibility criteria together.

Why Does The Size Of Your Home Loan Deposit Matter?

There are several reasons why the size of your deposit matters. If you want to discuss your current deposit plans with us, you can get in touch today by booking an appointment. At Lendstreet, we want you to know why your deposit matters.

Your Deposit Lets Your Lender Know How Much You Can Afford And Repay

Making regular payments into an account for your deposit gives your lender an indication of your financial ability. The larger your deposit, the more trustworthy you will appear to a lender.

Lenders will take their time to look at all your income sources, whether it’s your salary, dividends, or investments, to assess how much they can lend you. So, make sure you remain completely transparent with your lender.

Wondering how much you can borrow? Why not try our Borrowing Power Calculator and gain a better idea of how much you could potentially borrow from a lender.

Your Deposit Will Affect Your Interest Rate

When you apply for a home loan, the agreed deposit amount will more than likely determine the interest rate placed on the loan.

Consequently, the bigger your deposit, the more room you have to negotiate a better interest rate on your home loan.

You'll Have Access To More Lenders

With a deposit of 20% or above, you’ll also have a wider range of lenders to choose from. This is because some lenders will only let you secure a home loan if your deposit is 20% or above.

Are There Any Other Costs Of Buying A Home?

While preparing your deposit, there are several other upfront costs you’ll need to think about. These upfront costs will include:

  1. Stamp duty (a state or territory charge on completion of settlement).
  2. Home insurance that covers financial loss against damages.
  3. Pest and building inspections.
  4. Moving costs.

There also may be several ongoing costs like strata fees and council rates.

Ready To Talk To A Mortgage Broker?

Borrowers discussing home loan deposit with a mortgage broker

Whether you’re beginning to put your deposit together or you’ve been saving for a long time now, a mortgage broker will be there to discuss all your options with you.

At Lendstreet, we can look at your circumstances together and make sure you can reach all your current and future goals.

With a few appointments, we can decide what deposit amount will suit you best, how to set out your savings plan, and all the next steps in applying for a home loan.

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FAQ

Can I Buy A House With A $10000 Deposit?

With a $10,000 deposit, most lenders would expect a 20% deposit, meaning the property price would need to be $50,000. Some lenders may allow you a less than 20% deposit, but you’ll need to pay Lenders Mortgage Insurance (LMI). This is a one-off payment that protects the lender.

Is $25000 Enough For A House Deposit?

With $25,000 as a 20% deposit, your property would need to be $125,000. Some lenders may let you borrow up to 90% or 95% of your home’s value. This means that a $25,000 would be able to secure you a house valued at $250,000 or $500,000.

How Much Of A Deposit Is Required For A House?

Generally, you’ll want to save as much deposit as you possibly can. Most lenders will require a minimum deposit of 20% of the property’s value. Some lenders do allow deposits of 10% or 5%, but you’ll need to pay Lenders Mortgage Insurance (LMI)

How Much Deposit Do I Need To Buy A House In Australia?

When approaching a lender to buy a house in Australia, you’ll need to gather 20% of the property’s value. If you don’t have this much deposit, some lenders will take lower deposits, but you’ll be required to pay Lenders Mortgage Insurance (LMI).

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