Saving takes real steel and tenacity. How much of a deposit do you need to gain finance for your first home – does it need to be an alp or just a hill?
The first hurdle to buying your first home is possibly one of the hardest. Putting your money aside to accumulate for a deposit takes real steel and tenacity, and can seem a bit like climbing Mt Everest. However, every mountain has its peak, and once you’ve reached it then it’s all downhill!
There are plenty who have gone before you, as according to the Australian Bureau of Statistics (ABS), first home buyers make up for about 15 per cent of the lending to owner- occupiers every month – this amounts to almost $3 billion.
In light of this, how much of a deposit do you need to gain finance for your first home, does it need to be an alp or just a hill?
20 is the magic number
Just about every authoritative source will tell you the same thing when it comes to saving for home loans – “The bigger the deposit the better”.
The ABS asserts that the average loan size among those fresh to the market is around $340,000, which gradually rises year after year in tune with prices and inflation. Despite this, the proportion of deposit that it is recommended you have remains the same. In order to take advantage of lower rates, you should have at least 20 per cent of the purchase price.
According to the Australian Securities and Investments Commission (ASIC), if your deposit is less than 20 per cent of the purchase price, you will likely be charged a one- off payment to cover lender’s mortgage insurance.
This is simply because they will see you as a bigger risk to default on your payments, and therefore want some cover.
What’s the smallest deposit you can have?
Generally, the major lenders are willing to provide finance to home buyers with deposits as little as 5 per cent. However, the ASIC affirms that in this case there are a number of other factors that will influence your appeal as a borrower, including:
• A strong employment history and income
• A history of saving
• Minimal debts
• Clear credit history
Typically, the size of the loan you can access will be much less than the average mortgage.