How Big a Deposit Do I Need?

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How Big a Deposit Do I Need?

If you’re a first-time home buyer, you’re probably asking yourself this question, “how big a deposit do I need?” Not only does this article provide an answer to this question, we answer some more common questions other homebuyers like you have asked about property deposits.

RELATED: Easy Ways to Help You Save for Your Deposit

In this article:

  1. How Big a Deposit Do I Need?
  2. What Is Lenders Mortgage Insurance and How Does It Affect My Deposit?
  3. What Happens When I Don’t Have a Deposit?
  4. Am I Better off Saving Until I Get a Bigger Deposit?
  5. Are There Other Upfront Costs I Need to Consider?

How Big a Deposit Do I Need? | 5 FAQs Answered

How Big a Deposit Do I Need? | A9 Property, Brisbane Real Estate

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1. How Big a Deposit Do I Need?

When you plan on buying a house, one of the things you’ll need to provide is a deposit. As a rule of thumb, you’ll need anywhere from 5% to 20% worth of your desired home’s purchase price.

For example, if you’re eyeing a house with a purchase price of $600,000, you’ll need to come up with a deposit worth at least $30,000 (5% of $600,000). For the same purchase price, a deposit worth 20% translates to $120,000.

2. What Is Lenders Mortgage Insurance and How Does It Affect My Deposit?

When you’re looking to make a deposit on a new house, you’ll likely come across the term Lenders Mortgage Insurance (LMI).

LMI is an insurance your bank or credit institution charges you when you have a deposit worth less than a certain percentage of your desired home’s purchase price. It’s their way of protecting themselves from loses should you be unable to pay them back.

In general, the smaller your deposits, the more significant LMI percentage is charged to you by a mortgage lender. LMI percentage charges vary from bank to bank, so make sure you talk to your lender about their policies on lenders insurance.

3. What Happens When I Don’t Have a Deposit?

If you don’t have enough funds to be able to provide at least 5% of the property’s purchase price, there are other ways you can financially secure your dream home. Let’s take a look at two of the most common options:

How Big a Deposit Do I Need? | A9 Property, Brisbane Real Estate

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Acquiring Parental Guarantee

A Parental Guarantee is one way you can buy your first home if your savings are short of qualifying for it on your own.

As its name implies, this method turns your parents into guarantors of your deposit. Your parents offer equity from their own home as part of your deposit.

There are two main benefits to using Parental Guarantee in securing your dream home:

  • You get to purchase your dream home right away
  • You get to save on costs from LMI charges

Deposit Protect Bond

If you want to make a deposit on a new home right away but don’t have the finances to do so, looking into a Deposit Protect Bond is another option. A Deposit Protect Bond serves as a substitute for a cash deposit.

To obtain one, approach a bank or credit institution and ask for a Deposit Protect Bond. They will then assess your finances and produce a bond equivalent to your financial standing.

The bond is a guarantee to your lender that you’ll be able to pay your home property deposit in the future.

RELATED: 5 Things First Home Buyers Must Know

How Big a Deposit Do I Need? | A9 Property, Brisbane Real Estate

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4. Am I Better off Saving Until I Get a Bigger Deposit?

Holding off until you have enough for a bigger deposit is a conservative approach to buying a house. In fact, it follows general financial advice that you should only spend on things that you can afford.

However, you have to consider that the real estate market is rapidly changing. As such, waiting a few months could mean losing the bid to your dream home.

In some cases, the cost of applying for a mortgage with a minimum deposit is balanced by knowing that you’re able to reserve a high-demand property. Before rushing into decisions, make sure to evaluate your finances first.

To help you decide on this, you can ask yourself these questions:

  • How stable is my current employment?
  • How sizeable is my current income?
  • With my current salary, can I afford the terms of the mortgage payment?

5. Are There Other Upfront Costs I Need to Consider?

Aside from coming up with a deposit of at least 5% worth of your property’s purchase price, you have to consider other upfront costs. Here’s a list of miscellaneous charges to look out for when you’re applying for a mortgage aside from your deposit:

  • Contracts and legal costs
  • Government and municipal fees
  • Titles and registration fees
  • Inspections and certification fees

Make sure to talk to your bank or credit institution about these fees so you can budget your finances accordingly.

We hope that by reading this article, you have a better idea as to how big of a deposit you need to acquire your dream home. Generally, you need to provide a deposit worth 5% of your desired house’s purchase price.

If you can’t give this much upfront, you can avail of other options such as Parental Guarantees and Deposit Protect Bonds. With the right financial planning, you’ll be able to move into your dream home in no time.

Do you have any more questions about property deposits? Connect with us on Facebook, LinkedIn or Instagram and ask your questions!

Up Next: What kind of property should First Home Buyers look for?

About A9 Property

A9 Property is a team of property specialists helping first-time homebuyers and property investors on their journey into the real estate market. Our weekly real estate blog touches on industry trends, market shifts, and investment strategy, providing you with valuable insight into your property purchase journey. We are experts who specialise in off the plan properties–a popular investment strategy in Brisbane and Australia. Check out our carefully selected portfolio of off-market properties for sale or contact us for an obligation-free chat to discuss the best strategy to start building your portfolio.

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