What deposit do you need for a home loan?

June 06, 2016
Ali Batten

Are you looking to get into the property market on the ground floor? Are you buying an investment now to move in to down the track? Or are you looking to build a diverse property portfolio to help you retire comfortably?
Having set goals in place is the first step, but in order to achieve these goals you need to get an idea of how to start. The first place to start is how you’re going to come up with the funds for the deposit, and there are a few different options.

Many first time purchasers are buying a property to live in, and a popular type of deposit in this instance is hard-earned savings. For an owner-occupied property, there is no tax benefit of the interest paid on your loan, so you will usually want to minimise the amount borrowed and pay the loan off as quickly as possible.

Some people buying their first investment property have already built up useable equity in their own homes. Borrowing against your owner-occupied home for the deposit for an investment property is a common way to start your investment portfolio, and can have positive tax implications over using savings as a deposit. Usually you would need to do an increase on your existing loan in order to access the funds.

Cash bonus
Sometimes, buyers are in the enviable position of receiving a gift from family to use as the deposit for an investment or owner-occupied purchase. This usually reduces the loan amount and borrowing costs for the purchasers who then have smaller repayments and can pay the loan principal down faster, or build up equity to purchase again.

Another option available is a family guarantee. This is when family members, usually parents, have enough equity in their own homes that they can ‘lend’. This does not require borrowing against their house directly, but rather the loan on your purchase is secured by a limited value on their property as well as the new purchase. This is usually a temporary measure, and once the value of the purchased property goes up enough or the loan is paid down sufficiently, the parents’ house is released as security.

To find out which type of deposit will work best for you, call 02 9517 1818 or email newtown1@mortgagechoice.com.au. Or, if you feel like dropping in at our office, we are located at Suite 106, Flourmill Studios, 3 Gladstone Street, Newtown 2042. Be sure to share our blog on Facebook and Twitter and let others join the conversation!

Posted in: Home loans

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