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How Much do I Need for a Home Loan Deposit?

Trying to get a deposit together can mean knuckling down and saving hard for a while. It might mean having less of your favourite things, or even living with the parents until you've reached that goal. So at what point can you breathe a sigh of relief and start looking for your new home?

How Much do I Need for a Deposit?

Ideally you will have saved at least 20% of the value of the property you would like to buy. This allows you to avoid paying Lenders Mortgage Insurance' which is often your second largest upfront cost. But let's face it, with Australian house prices being so high, 20% is a lot of money. For instance a 20% deposit on a property worth $400k would set you back $80k before upfront costs. The minimum a lender will usually accept as a deposit is around 5%. So, if you don't mind paying lenders' mortgage insurance you can enter the market with significantly less savings.

What is Lenders Mortgage Insurance?

LMI is a one-off fee that gets added to your loan if you have a deposit of less than 20%. This insurance protects the lender if you ever default on your loan and the property has to be sold. If the sale of the property isn't enough to cover the outstanding home loan amount, then LMI covers the shortfall.

Accounting for Those Upfront Fees

Aside from your deposit, it pays to understand and prepare for the upfront costs involved with taking out a home loan. A common misperception is that the total amount you have saved for a house can be used as a deposit. In actual fact, before your deposit is calculated, the lender has to take into consideration any upfront fees involved in purchasing the property. These are often substantial and can affect the true value of your deposit. Below are the main upfront fees to consider, with indicative costs based on a $400k property. The costs can vary depending on the size of your deposit, home loan lender and other variables:

Upfront Fees  ​Indicative Cost (Based on $400k property value)
​Government Fees
​Mortgage Registration ​$139
​Transfer Registration​$139
​Stamp Duty​$13,490
​Home Loan Fees
​Establishment Fee$699​
​Lenders' Mortgage Insurance​$6,336
​Property Costs
​Property Valuation​$300
​Conveyancing & Legal Fees​$1,000
​Building & Pest Inspection​$500
​​​Total Upfront Fees​$22,603

What Else Affects My Borrowing Power?

Essentially, the bigger your deposit, the less you'll need to borrow and the lower the overall cost of your loan will become. However, the amount you can borrow relies not just on the size of your deposit, but also things like:

  • ​Income, assets and financial commitments
  • Existing debt and credit limits
  • Your deposit size
  • Requested loan type
  • Credit history

So what Now?

To find out more about your actual borrowing power, upfront fees, deposit amount required and estimated repayments, check out the online calculators provided by most home loan lenders. These are a good starting point to get your head around the basics. For further information, contact your lender who will guide you through the process and can give you a firm indication of your borrowing power.

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