July 23, 2014
One of the most common questions I receive from my clients is, “How much deposit do I need?” It can be very confusing to understand this alone.
Meeting with a Mortgage Broker can assist you to understand this clearly, based on your own personal circumstances.
It really comes down to whether you are buying an established home, a house and land package or a block of land and it can also depend on where you are looking to buy.
Generally, the government stamp duty and fees will cost approximately 5% of the purchase price of the land or established property and you generally need another 5% which you have saved up over at least a 3 month period of time. Lenders refer to this as “Genuine Savings”
A number of lenders on our panel will lend up to 95% of the purchase price, depending on the property location, which generally means that you require a total deposit of between 10 and 12% of the purchase price
If for example you were looking to purchase and established home for $400,000, you will require a deposit of approximately $45,000 and $20,000 of this (5% of the purchase price) needs to have been genuinely saved over at least a 3 month period.
This can be tough for first home buyers. The good news is that there are a number of options that lenders will view favourably to assist first home buyers into their first home.
If you are fortunate enough to have a parent or family member who will gift you a sum of money, this may be able to be used toward your deposit.
If for example you have parents who have worked hard to pay off the majority of their home and do not have excess funds to gift, they may be willing to use the equity in their home to assist you with your first home purchase. This is referred to as a Family Guarantee.
A Family Guarantee uses equity in their home rather than cash. Generally, a Family Guarantee is limited to a maximum of 20% of the purchase price of the new home.
Usually, two new loans are set up in your name. The main loan is set up for 80% of the purchase price and is secured by a mortgage over your new home. The family guarantee or guarantor loan is for the balance and is secured by a mortgage over the guarantor(s) home. By setting the loans up in this way, you can potentially save thousands of dollars in Lenders Mortgage Insurance.
The lender will assess whether you can afford to make repayments on both loans as you are responsible for them. A great way to structure this type of loan is to set your main loan up as Interest only initially and the family guarantee loan as principle and interest and concentrate on paying the family guarantee loan off as quickly as possible. Once it has been repaid, the family guarantee can be removed.
In the event that you are unable to make repayments to the guarantor loan, then the lender may legally require the guarantor(s) to meet them. By setting the loans up in this way, the guarantor(s) are not legally liable for repayments towards the main loan.
Family guarantees provide a great option but need to be reviewed and explained very carefully to the potential guarantors. Because of this, they will generally need to obtain legal and financial advice as a requirement of the lenders approval.
If you would like to know how much deposit you need to obtain your property ownership goal, based on your personal circumstances, please call me on 0403 382 327.