How much de­posit do you re­ally need to buy your new first home?

Whitsunday Times - - REAL ESTATE -

IT’S one of the big­gest dilem­mas fac­ing a first­time home­buyer.

How much de­posit do I need be­fore I can get fi­nance to pur­chase a prop­erty?

And do I need to wait un­til I have 20% of the pur­chase price saved or should I buy with the bare min­i­mum needed – even if it means I’ll wear the ex­tra cost of lenders mort­gage in­sur­ance?

With prop­erty prices in some parts of Aus­tralia grow­ing at a heady pace in 2015, many prospec­tive first-home buy­ers may feel frus­trated.

No quicker have they saved an­other lump of de­posit money, the prices of their tar­get homes may have moved out of reach again.

Should you there­fore strive to get into the mar­ket even with the most mea­gre of sav­ings?

From con­sul­ta­tion with a broad range of prop­erty fi­nance ex­perts, the gen­eral view is big­ger is bet­ter, how­ever there are al­ways ex­cep­tions to this rule.

How much de­posit does a first-home buyer need be­fore banks will talk to them?

Kaia Hunter of Mort­gage Choice says a min­i­mum 5% de­posit plus costs is usu­ally re­quired.

The costs as­so­ci­ated with pur­chas­ing a res­i­den­tial prop­erty – in­clud­ing stamp duty and le­gal fees – are usu­ally about 5% of the pur­chase price.

If a prop­erty is $500,000 to buy, bud­get on need­ing at least $50,000 in your piggy bank ($25,000 de­posit sav­ings + $25,000 for pur­chase costs).

“How­ever, there are other op­tions for firsthome buy­ers like a guar­an­tor loan or per­haps the use of gifted funds, which could mean a first-home buyer could pur­chase with no de­posit at all,” Ms Hunter says.

Mort­gage bro­ker Mar­garet Wil­cock of Mort­gage 500 says each bank has dif­fer­ent pol­icy around the de­posit re­quire­ment “so it’s best to speak with a bro­ker that knows each bank’s poli­cies”.

“Some re­quire that it is gen­uine sav­ings, oth­ers have a non-gen­uine sav­ings pol­icy but the mort­gage in­sur­ance is of­ten higher,” she said.

Is a first-home buyer bet­ter off wait­ing longer to buy if it means they can save a big­ger de­posit?

Many lenders will let you bor­row up to 95% of your home’s value how­ever the big­ger the de­posit, the bet­ter, says Michelle McKin­non of Aussie.

“There are no hard and fast rules around how much de­posit a first-home buyer needs to have … how­ever, while not re­quired for owner-oc­cu­piers, 20% is seen as the ‘ideal’ de­posit for a few rea­sons,” Ms McKin­non re­ports.

“If you bor­row more than 80% or more of your home’s value you will be asked to pay lenders mort­gage in­sur­ance (LMI).

“It in­volves pay­ing a one-off pre­mium when you take out a home loan so the big­ger your de­posit, the less you pay in LMI.”

Daniel Co­hen, co-founder and di­rec­tor of First Home Buy­ers Aus­tralia, agrees that while it is pos­si­ble to start ap­proach­ing lenders with only a 5% de­posit plus costs saved, it is prefer­able to wait un­til you have more saved dol­lars amassed. “If you only get a 5% de­posit not only do you have to pay for ex­pen­sive LMI but you would also be at greater risk of de­fault­ing on home loan re­pay­ments if a per­son was to lose their in­come due to un­em­ploy­ment or med­i­cal rea­sons,” he said.

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.