How much deposit should I have to buy a house?

Understanding the Basics of a Home Deposit

The deposit for a house is a percentage of the purchase price that you pay upfront. It's a sign of your commitment and a guarantee of your intent to follow through with the home purchase. The size of the deposit can affect your loan terms, interest rates, and need for Lenders Mortgage Insurance (LMI).

So, how much do I need?

To buy a house, you generally need a minimum of 10% of the price of the house, however, 20% is considered the standard. This doesn’t mean it’s impossible to buy a home with a smaller deposit, but to be honest, the bigger the deposit, the better. It also helps to reduce borrowing and future repayments.

Should you not quite have the 20% saved, we do have access to a couple of lenders that support funding up to an 85% LVR whilst also avoiding LMI.

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So why is 20% the magic figure?

Avoid Lenders Mortgage Insurance - LMI is a one-off insurance premium that protects the lender (not the borrower) if the borrower is unable to repay the loan. Generally, if you have a deposit of 20% or more, you won’t need to pay this.

Better Loan Terms - A larger deposit can improve your borrowing power and potentially secure more favourable loan terms.

Do first-home buyers have to pay LMI?

First-home buyers typically have to pay Lender's Mortgage Insurance (LMI) if they borrow more than 80% of the property's value (i.e., if the deposit is less than 20%).
However, there are exceptions and assistance programs designed to help first-home buyers:

First Home Loan Deposit Scheme (FHLDS):

This Australian Government initiative helps first home buyers purchase a home with a deposit as low as 5% without needing to pay LMI. The government effectively guarantees the difference between the deposit saved and the 20% threshold, eliminating the need for LMI.

It's important for first-home buyers to explore all available options to minimise costs when entering the property market. Mortgage brokers and financial advisors can offer guidance tailored to individual circumstances, potentially helping first-home buyers navigate these options more effectively.

How IDEAL Financial Group Can Help

At IDEAL Financial, we understand that saving for a home deposit can be daunting. Our expert team can provide personalised advice on saving strategies, loan options, and government incentives that might be available to you. We can help you assess your financial situation and determine the most suitable deposit size for your circumstances, ensuring you're on the best path to homeownership.

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