How much deposit do I need to buy a house?
We get it. Owning your own home isn’t as easy as it used to be. But that doesn’t mean it isn’t still possible. A good strategy and a little bit of planning can help you get there.
Guide to home loan deposits.
How much deposit do I need for a home loan?
To get a home loan, you need a cash deposit. The deposit covers a percentage of the price of the property you want to buy, while the home loan covers the rest of the property price.
In most cases, home loan lenders can lend up to 80% of the property value, meaning you would need to come up with the other 20% (your deposit). For a property of $400,000, for example, you would need a cash deposit of $80,000.
What if I have a smaller deposit?
$80,000 is a lot of money. When you have rent, bills and groceries to pay for, it’s not easy to save that much. Some lenders understand this and can let you borrow more than 80% of the property’s value. Some can lend you up to 95% – meaning your deposit will be 5%, plus the associated purchase costs. This means that if the property you want is $400,000, 5% of that would be a $20,000 deposit – a bit more doable.
Of course, a smaller deposit comes with greater risk. If interest rates rise or unexpected expenses pop up and you’re borrowing at maximum capacity, you could get caught short. Because there’s a greater risk, you’ll need to pay Lenders Mortgage Insurance (LMI) if your deposit is under 20%. LMI is paid to the bank’s insurer to cover the bank in the event you default on your home loan. You can pay your LMI as an upfront cost or, depending on how much LMI you have to pay, you can add it to your home loan amount.
What if I don’t have a deposit at all?
If saving a deposit is challenging and you want to live in your own home sooner, you may be able to get help from a family member who can act as a guarantor on the loan. The guarantor – who must be an immediate adult family member – agrees to use the equity in their property as additional security for your property, instead of a deposit. Keep in mind that your family guarantor may need to have their mortgage with the same bank, so they might have to consider moving their home loan.
As the borrower, you’ll need to be able to repay the home loan like normal. Once you’ve paid off part of the loan or your property has increased in value, you can apply to remove the guarantee. This means your family member will no longer be liable for any default on the repayments.
Find out more about our Family Guarantee option.
Are there any other costs of buying a home?
As well as the deposit, keep in mind that there are some other upfront costs you’ll need to cover. These include things like stamp duty, home insurance, pest and building inspections, and moving costs. Then there are ongoing costs to consider like council rates and strata fees. To understand a bit more about these costs, see our guide to upfront home buying costs.