Saving a deposit is exhausting, right? You save and save, just for the interest rates to go up again, only for you to need to keep saving more.
We know it’s a tough gig to save up a minimum deposit to secure a home loan, especially when you want to travel the world, enjoy a cocktail or chill out with a movie.
The good news is that at Pinpoint Finance, we know lenders who will accept a 5% deposit for a home loan and who, in addition, could help you access several grants that are available for first-home buyers.
Okay, so how much do I NEED to save?
Well, usually the bigger it is, the better, and this is also the case when it comes to home loan deposits. This is because lenders look at the ‘loan-to-valuation ratio’ (LVR), which is the ratio of the loan amount versus the value of the property you want to purchase.
The bigger your deposit, the lower your LVR and the lower your LVR, the less you have to spend on repayments as you’re paying less interest long term.
The other con to a smaller deposit is Lenders Mortgage Insurance (LMI). If your LVR exceeds 80% (which would happen if you have less than a 20% deposit), you will need to pay LMI. LMI is a once-off lump-sum payment that protects the lender if you don’t pay your mortgage.
The good news is that, more often than not, LMI is included in your loan and isn’t an upfront payment but rather a low deposit premium. As a result, you can still purchase a home now and get into the housing market, even if you DO have to pay extra.
Remember that additional costs are on top of your 5% deposit home loan.
Wait, what do you mean? I thought I only needed 5%.
Unfortunately, that’s not the case. There will always be additional costs on top of the actual purchase price of a home.
Besides the deposit, you also have to fork out the legal fees, stamp duty, house and contents insurance, the moving trucks (if you have furniture) etcetera, it’s important to keep these in mind when deciding if you are ready to purchase a property.
Regarding stamp duty, this is calculated based on the price you pay for your property and does not contribute to paying off your mortgage. The amount will also vary depending on which state you live in Australia, but as a first-home buyer, you may be eligible for a discount! (That’s what your trusty mortgage broker is good for! 😉)
Are you a first-home buyer and could use some extra help?
Check out the below grants from the Australian Government that you could be eligible for!
1. First Home Super Saver Scheme, which allows you to save money and put money aside for your first property inside your super fund!
2. First Home Loan Deposit Scheme (FHLDS), where the National Housing Finance and Investment Corporation (NHFIC) guarantees part of your home loan. This guarantee is for up to 15% of the property’s purchase price and each financial year, about 10,000 spots are available to eligible first-home buyers.
3. First Home Owner Grant (FHOG), a one-off payment that can help you secure your first home loan.
Please keep in mind that certain conditions and criteria have to be met for these grants, but they are still worth considering as they can contribute thousands of dollars towards your mortgage.
Extra insight: Investors, WA residents or people wanting to move to WA can claim a $20,000 building bonus if you build a new property in WA. Applications for this will close on 30th April 2023, so make sure to take advantage of it!
Obtaining your 5% deposit!
If you’re struggling to get your 5% deposit, you can consider the below options:
- Buying the property with someone else (a partner, friend, parent or sibling).
- Can a parent/ guardian loan you some money to top up your deposit?
- Can your parents be parental guarantors?
- Could you get a cash gift from someone to help boost your deposit?
Just a few notes for the above:
- If you’re looking to purchase with someone else, make sure they have a substantial savings history and can easily afford to pay off the repayments. Not only do you want the lenders to loan you and the other person money happily, but you also want to make sure you are not left hanging high and dry!
- If you’re getting a cash gift or a loan from a parent, ensure that you have savings to back it up. The lenders will want to see that you have an efficient savings ability, no matter how little you save each week, fortnight or month.
If you’ve got your 5% deposit ready or need help figuring out where to start, book in a FREE initial call today so we can guide you down the right path!
