How much deposit do I need?

When you're saving for your home loan deposit, it's great to aim for at least 5%. Make sure to factor in more than just the price of your dream home. 

Deposit explained by our home loan expert

How much deposit do I need to buy a home?

Several factors come into play when you’re deciding how much deposit you need to buy a home. What you can afford to repay regularly, how high your LVR is and what type of loan and the lender you apply with will all impact the desired size of your home loan deposit.

Working out your LVR

Your loan to value ratio will have the biggest impact on how much lenders are willing to lend to you. To work out how much you should be aiming to save, try working backwards and aim to save at least 5% of the property value. Use our loan to value ratio calculator to work out your ideal home loan deposit.

Whilst it’s not always essential to have a 5% home loan deposit, the more money you have to put forward as contribution to the home value, the larger the choice of lenders and loans available to you.

What can you afford to service?

Working out what you can afford to repay on a weekly, fortnightly or monthly basis will also dictate the size of the loan you should get and therefore the necessary home loan deposit. But mortgage repayments aren’t the only costs you need to factor in. A mortgage broker will help you break down all the costs involved from the initial set up and moving costs through to council rates, strata fees and utility bills. All of these need to factor into your budgeting when figuring out what you can afford to borrow.

It’s also critical to think about the impact that changing interest rates will have on your repayments. Whilst interest rates are currently at all time lows, they won’t remain there for the life of a 25 year home loan. Your mortgage broker will help you to plan for contingencies and make sure that you will still be able to meet your repayments should interest rates increase. Have a look at our compare home loan interest rates calculator to see the impact an increase in interest rates will have on your mortgage repayments.

Interest only loans or principal and interest loans?

When looking to borrow it’s important to compare all the different home loan types available.

If you’re looking to purchase an investment property, it’s worth looking into the option of an interest only loan. With an interest only loan, you repay only the interest that is calculated on the principal (the initial loan value). As a consequence, the repayments are lower than with a standard home loan (where you pay off both principal and interest).

Lower repayments may mean that you are able to borrow more money to purchase your home. However in these circumstances, lenders may require larger home loan deposits, or greater security against the loan such as a family member going security guarantor.

A mortgage broker will help work you through the pros and cons of each home loan type and help you find the one that’s most suitable to your needs. 

Factoring in LMI

If you aren’t able to save a 20% home loan deposit and don’t have the option of a security guarantor, lenders will require you to pay for Lenders Mortgage Insurance (LMI). LMI covers only the lender against any losses that may result from you defaulting on your home loan.

LMI is generally calculated as a percentage of the home loan value - you can use our LMI calculator to work out what the premium may be. Depending on the lender you select, you may have the option to either pay the LMI premium at settlement of the loan, or to add the LMI premium amount to the total you will need to borrow.

It’s important to factor this in to your borrowing power as it may impact the total amount of money you are able to borrow and the value of the property you can afford to buy.

If you’re able to put down that 20% deposit, you can definitely save on the hefty premium involved in paying LMI. However, for many, saving that much money can take quite a long time, or for renters, be almost impossible. Your mortgage broker will work with you to explore all your options, whether it’s paying LMI or having a family member act as your security guarantor, to make sure you’re getting the right home loan for your circumstances.

Factoring in other home buying costs

When you meet with a broker, they’ll take into account the amount you need to borrow to purchase your home as well as all the associated costs, to come up with the total funds you require.

These associated costs can include:

  • Stamp duty
  • Application or establishment fee
  • Settlement fees
  • Legal fees
  • Mortgage registration
  • Property inspections (pest/building)

All of these costs will contribute to the total funds you require to purchase a property. When working out the amount you will need to borrow, the calculation is:

Total funds required (house price + costs) – Your contribution (deposit + grants) = the amount of money you will need to borrow.

It’s important to factor these costs into your plans when saving for your home loan deposit and to consider what your maximum property value will be when you are looking at houses.

Your mortgage broker will help give you a comprehensive breakdown of all the associated costs in purchasing a property to make sure you are borrowing within your means and borrowing enough to purchase your home.

Looking at your credit record

Your credit report holds your personal information (such as name, address, date of birth) as well as a comprehensive outline of your credit history from applications, payments and denials of credit.

The credit report draws information from banks, lenders, telecommunications companies and utility companies to assess your ability to repay debt and your risk as a debtor.

When you submit a home loan application, your lender will obtain a copy of your credit report from a credit report agency and may approve or deny your application based on its contents. The lender may also use your credit report as a factor in setting your home loan interest rate. However, even if you do have a less than perfect credit history, there are lenders on our panel that can help.

If you are looking to take out a home loan in the near future, it’s valuable to get an idea of what your credit report looks like. You can request a copy of your credit report through credit reporting agencies like Veda. If you do have any blemishes such as late payments or declined credit applications, it’s worth speaking with a financial adviser on ways to improve your credit scores, or, have a read of our tips for improving your credit score

Crunch the numbers with an expert

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Getting a home loan with no deposit

These days, it’s practically impossible the get a home loan with zero deposit. With the introduction of the National Consumer Credit Protection (NCCP) Act, all lenders must now conform to NCCP’s responsible lending practices.

Due to tighter lending regulations, these days, lenders require you to contribute a certain percentage of the total funds required. Some lenders will require at least 3% genuine savings while others may accept gifts or other contributions to a similar value. These values may or may not include Lenders Mortgage Insurance so it’s always best to have a mortgage broker compare all the available home loan options for you.

Gifts of money

In lieu of genuine savings, some lenders may accept gifts from direct family members as your contribution to the loan value.

Gifts of money must come from immediate family members and be qualified as not repayable. Our mortgage brokers can guide you through this process to ensure gifts do meet the lenders’ criteria.

If you are looking to purchase a property and don’t have a sizable deposit, our mortgage brokers will assess your current situation and available funds using our Loan Qualifier software to show you your available options.

Coaching you to achieve your home loan goals

No matter where you are in your home ownership journey, our mortgage brokers will help guide you through the process.

Our brokers will help you establish savings and budgeting plans to work towards your home loan deposit if you’re just starting out. They can also help you plan out potential costs involved in purchasing a property so that you can be ready when you find that dream home.

Chat with a Mortgage Choice mortgage broker today to start planning your future and reach your home ownership goals sooner. 

Need some help pulling your deposit together? Our mortgage brokers can help you get on the right track.

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