It’s the age-old question and debate – what is the necessary amount of deposit required for a home purchase? Whether the property in question is for an investment or property to live in – let’s break down some myths and reveal some truths of deposit for property.
20% Deposit is the only way.
Q: Do we truly need to put together a 20% deposit of the property value to secure a loan?
A: Not always is the closest answer to the truth but let us break this down!
For Example, Tom and Sarah Smith are looking to purchase a home to the value of 500k.
20% of a 500k property will be 100k plus costs such as stamp duty and other bank fees (We will talk about these later)
10% = 50k plus costs such as stamp duty and LMI (lenders mortgage insurance, we will talk about this later as well)
5% = 25k plus costs such as stamp duty and LMI
3 very different costings with all different scenarios that could still lead to the purchase of the property.
No Deposit, No loan
Myth: If I don’t have 20% deposit, I cannot get a loan. FALSE!
Most lenders on a mortgage brokers panel account for a loan up to 95% of the property’s value. Meaning you will only require a 5% deposit plus costs such as stamp duty, LMI and mortgage registration fees.
Stamp duty is a form of tax. It is applied to a number of transactions, including transfers of property and mortgages. Stamp duty costs vary from state to state. Stamp Duty Calculator
Lenders Mortgage Insurance (LMI) is a one-off, non-refundable, non-transferrable premium that’s added to your home loan. It’s calculated based on the size of your deposit and how much you borrow. The more you contribute to the purchase price of your property, the lower the cost will be. LMI protects the bank against any loss we may incur if you are unable to repay your loan.
Best option: put in the 20%
20% deposit will always get you the sharpest rate for a loan! Yes and No
Yes: in most scenarios and situations, this will get you one of the sharpest rates in the market as there is less risk for the bank meaning a better rate for the customers and clients.
No: there are some government schemes that will compete with these rates! These schemes, for example, First home Buyer Guarantee scheme allow a first home buyer to purchase a home with a 5% deposit at the rates of an 80% LVR. (specific requirements need to be met)
Winner winner, chicken dinner
Myth: I can use the funds from a winning scratchie for a deposit on a house! FALSE!
If the money has note been saved over a period of time on a regular basis that cannot be evidenced as genuine savings there may be some limitations depending on which bank you decide to use for the loan.
Some forms of alternate genuine savings that banks will consider are inheritance after being held in an account for at least 3 months, equity in an existing property and 6 months rental ledger.
Talk to a professional
There are multiple myths out there that have come out of misinformed clients that have not been advised by a professional. This is where a mortgage broker or financial advisor would be able to clearly state your ability to purchase a home with your current deposit and give you an expected price range that you would be able to purchase! If you are unsure if your able to purchase at this current time, book a time with one of our mortgage specialists to see what you would be able to purchase!
After all, the final scenario and situation will come down to what fits your circumstances the best. This is where speaking to a professional such as a mortgage broker or financial planner will benefit you hugely. You could find that being a 20% deposit will be detrimental to your situation whereas you can put down a 5-10% deposit and leave some sense of security with savings in pocket.
One Click Life Mortgages!
One Click Life is a mortgage broker that can help you find a lender that meets your needs! We partner with a number of lenders to ensure you are receiving the best deals on the market. We do more than just mortgages. One Click Life can also take care of your Tax Return, Will, Personal Loans, and Private Health Insurance so you can focus on the things that matter to you.