How much deposit do I need to buy a house?
How much do you need to save for a home deposit?
One of the first things you’ll probably want to know when thinking about buying a home is what size deposit you’ll need. The simple answer is … it depends. That’s because lenders take several factors into account when deciding how much they’re prepared to lend.
One of the most common questions we get asked is if you can buy a house with less than a 20% deposit The answer is yes you can but you will have to pay Lenders Mortgage Insurance and may need to meet some further credit requirements such as genuine savings.
What is Lenders Mortgage Insurance?
As the name suggests, Lenders Mortgage Insurance is designed to protect the lender if a borrower defaults on their home loan. Should the lender need to sell the property, there’s a chance the sale price might not cover what is remaining on the loan. In that case, Lenders Mortgage Insurance will cover the difference.
So if Lenders Mortgage Insurance covers the lender, what’s the benefit to the borrower? The simple answer is Lenders Mortgage Insurance means banks and other mortgage lenders can offer home loans to borrowers who have a smaller deposit.
With most lenders, the Lenders Mortgage Insurance can be added on to the loan amount.
Having a family member go as Guarantor
One way you might be able to get into your first home with a smaller deposit without needing to pay Lenders Mortgage Insurance is by having a family member guarantee part of your loan. Take a look at this video below to find out how this could work for you.
Find out more about St.George Family Pledge
What does LVR mean?
A home loan term you’ll likely hear a lot is ‘LVR’. This stands for ‘Loan to Value Ratio’ and is the percentage borrowed compared to what the lender values the property at. This means if you have a $50,000 deposit and the property is worth $500,000, the LVR would be 90%; likewise, if your deposit is $100,000, the LVR would be 80%.
Therefore, the higher your LVR, the smaller your deposit will be and the greater the potential risk to the lender.
Remember to take other upfront costs into account
It’s important to keep in mind that your home deposit isn’t the only thing you’ll need to budget for. There are a range of other fees and costs that will you’ll need to cover as well.
These can include:
- Stamp duty
- Conveyancing or legal fees
- Building and pest inspections
- Building insurance
- Loan Establishment fees
If you’re a first home buyer, you may be eligible for stamp duty exemptions and first home owner rebates. You can find out more at firsthome.gov.au
Does it matter how you get your deposit?
In some circumstances you may need to provide proof of genuine savings. Genuine savings refers to money you’ve saved up yourself, usually for a minimum of three months and at least 5% of the value of your purchase property.
The most obvious example is money you have in a savings account, but it can also include term deposits, shares and managed funds.
If you’re currently renting, the good news is with St. George the rent you pay can also be considered as evidence of genuine savings (conditions apply), so rather than having to show that your deposit is from your own savings, it could come from another source such as a gift from a family member.
What can you do to improve your ability to get a loan with a smaller deposit?
- Get saving early – demonstrating you have the discipline to put money aside in savings can help show lenders you know how to budget and save, not to mention that the more you save, the more you’ll have towards your deposit
- Reduce your debt levels – by paying back debt, not only will you owe less, as your debts get lower, you’ll also pay less interest. This in turn can be put towards a bigger deposit.
- Lower your credit card limits – Even if you haven’t got anything owing on your cards, your lender will take your total credit card limits into account. Think about lowering your card to a level that suits your needs.
- Look after your credit score – by paying your bills on time, you’ll avoid any blemishes on your credit history. This shows lenders you’re a responsible borrower.
- Trim your expenses – if your living expenses are high, it can affect how much you’re able to borrow. It’s worthwhile taking a good look at your outgoings and see where you could make savings.
Credit criteria, fees, charges, terms and conditions apply. Based on St.George credit criteria, residential lending is not available for Non-Australian Resident borrowers.
This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information to your own circumstances and, if necessary, seek appropriate professional advice.