If you’re wondering, “How much deposit do I need for a home loan?” – the answer is not as straightforward as you might think.
While most participating lenders require a minimum 5% house deposit, the bigger your deposit amount, the less likely you will have to pay lender mortgage insurance (LMI).
But, if you’re eligible to pay a smaller deposit, it could mean entering the property market and settling into your new home sooner than you had expected.
So, the amount of deposit you need for a home loan depends more on your financial situation, what lenders offer, and what you’re willing to pay.
Here are a few factors for you to consider.
So How Much Deposit Is Required For a First Home Buyer?
Knowing how much deposit a first home buyer is typically required to purchase a house starts with grasping the general trends in the Australian property market.
The fact of the matter is that NSW buyers need $233,500 in savings to put down a 20% deposit.
Data from the Australian Bureau of Statistics shows a deposit that equates to this size is actually 245% of the average annual income in NSW.
Here’s a further breakdown of state-by-state average deposits:
|
State |
Average property value |
20% home loan deposit |
Average annual income |
% Average annual income |
|
NSW |
$1,167,500 |
$233,500 |
$95,259 |
245% |
|
VIC |
$904,800 |
$180,960 |
$95,311 |
189% |
|
QLD |
$781,600 |
$156,320 |
$93,132 |
168% |
|
SA |
$684,700 |
$136,940 |
$87,246 |
157% |
|
WA |
$671,000 |
$134,200 |
$106,044 |
127% |
|
TAS |
$662,200 |
$132,440 |
$84,204 |
157% |
|
NT |
$521,700 |
$104,340 |
$92,347 |
113% |
|
ACT |
$947,900 |
$189,580 |
$105,191 |
180% |
However, the first home buyer guarantee can help eligible home buyers access a loan with a lower deposit requirement.
Please note that this is a general figure, and the specific deposit requirement varies across different locations. For instance, property prices and, consequently, the deposit requirements in major cities like Sydney and Melbourne tend to be higher.
Factors Influencing First Home Buyer Deposit Amounts
Several elements come into play when a lender determines the first home buyer deposit needed for a home loan. Let’s break down some of these key aspects:
Location of the Property
The location of your desired property is a significant determinant of your home loan deposit. For instance, property prices in major cities like Sydney and Melbourne tend to be higher than in rural or suburban areas.
Therefore, a 20% deposit on a house in Sydney that meets the property price threshold will likely be a substantially larger amount than a comparable home in a regional town.
Type of Property
The type of property you’re looking to purchase has a direct influence on the deposit amount you’re required to provide. For example, lenders may require a higher deposit for off-the-plan or investment properties due to the additional risk associated with these types of loans.
Lender’s Policies
Each participating lender has different policies regarding the minimum deposit required for a home loan.
Some may allow as low as a 5% deposit, while others might have stricter guidelines and necessitate a 20% deposit. Conducting thorough research and comparing various lenders can ensure you find a mortgage that suits your financial situation best.
The Borrower’s Financial Profile
The stronger your financial profile – steady taxable income, good credit, stable employment history – the more likely you will secure a home loan with a lower deposit.
Conversely, if your financial profile has weaknesses, lenders may require a larger deposit to offset their risk. The home guarantee scheme can help eligible buyers with weaker financial profiles, such as eligible single parents, access home loans.
Why Lenders Require Lenders Mortgage Insurance
Lenders need some form of security if borrowers default on their monthly repayments. If borrowers pay a 20% cash deposit upfront, lenders consider that to be enough security.
If you pay less than 20%, lenders will likely require you to pay lenders mortgage insurance.
The LMI policy protects banks from financial loss in circumstances where you are unable to meet your monthly repayment obligations.
Adding LMI to your mortgage loan repayments can cost homebuyers thousands of extra dollars in the long run.
For this reason, many people try their best to secure a 20% deposit based on the maximum property purchase price to waive LMI fees.
How to Pay As Little As 5% Deposit
Lenders consider high-earning professionals low-risk because there is less chance they will dishonour their home loan repayments. For this reason, they can enjoy a lower minimum deposit and waive their LMI premiums.
If you’re a member of one of the following professions, you could qualify to pay a deposit of 10%, some:
- Legal professional
- Quantity surveyor
- Mining specialists and mine surveyors
- Medical professionals – some of these may only need 5% deposit
- Chief financial officer
- Veterinarian
How Your Parents Can Save You Money On Your Deposit
The most underrated way to acquire a cash deposit is to ask your parents.
If your family members are in a position to provide financial assistance, they’ll likely want to help you get ahead in life and become first-time home buyers. So, it’s worth asking them to help you kickstart your property journey.
If your parents can’t help with a cash deposit but they own property, you could ask them to guarantee your home loan using the equity in their property. Depending on their property value and how much they have already paid off, their equity could be enough to cover other upfront costs such as stamp duty and legal fees.
So, with the help of your parents, you may be able to pay less than a 105% deposit – even up to no deposit out of your own pocket at all.
How FHLDS Or FHOG Can Cover 5% Of Your Deposit
To access your home’s equity, you’ll need to have paid off at least 20% of its current residential property value. You’ll have to have it reevaluated to determine this and then refinance the house to access its equity.
Similar to using the equity from your parents’ home, you can also use the excess equity, if there is any, to pay stamp duty and other costs or unexpected expenses connected to your home loan.
Key Takeaways
- Deposits for Australian home loans typically range from 5% to 20%, with buyers urged to aim for 20% to avoid lenders’ mortgage insurance (LMI).
- Factors such as property location, property type, the lender’s policies, and the borrower’s financial profile determine the deposit amount.
- To support eligible single parents and homebuyers in their journey towards homeownership, special programs and grants may be available to assist with the deposit requirements, making the dream of buying a home more attainable.
- Recent statistics reveal varying average deposit amounts across different Australian cities.
- First home owner grant, LMI, and deposit schemes are important considerations when determining how much deposit for first home buyer is necessary.
- The use of strategies like parental guarantee, professional discounts, and equity from a first home can significantly reduce the deposit burden.
Lean into the professionals today, and contact The Mortgage Agency as you take the first steps to becoming a home buyer.
