If you’re a first home buyer ready to embark on your journey to home ownership, one important consideration is the size of your deposit. Not only does your deposit determine how much you could borrow, but it can also impact the interest rate and other fees you may be charged for your mortgage. In this comprehensive guide, we'll take you through what you need to know about deposits, including how much you'll need, alternative options available, and some essential tips to help you secure your dream home.

1. How much deposit do I need?

Saving for a deposit is often the first step towards buying a home. It’s also the biggest road block for many first home buyers! While traditionally, a 20% deposit is recommended to avoid paying Lenders Mortgage Insurance (LMI), many lenders now offer options for deposits as low as 5% of the property’s purchase price. Keep in mind though that a larger deposit can still offer benefits, such as lower interest rates and reduced loan repayments.

2. What are some other deposit options?

Saving a big enough deposit is understandably challenging. With property prices on the rise, reaching that coveted 20% can feel impossible. Beyond simply saving for longer, there are alternative deposit options available to eligible first home buyers:

• Lenders Mortgage Insurance (LMI): First home buyers with a deposit of less than 20% are usually required to pay LMI, an insurance that lenders charge to low deposit borrowers which protects the lender in case you default on your loan. Paying LMI could mean not having to wait while you save up a big enough deposit.
• Government Assistance: Various government schemes, such as the First Home Guarantee or state-based grants and concessions, can assist eligible first home buyers with their deposit. It’s worth investigating these to check your eligibility as they can make a significant difference to your deposit.
• Guarantor: Having a family member act as a guarantor, using the equity in their own home as security for your loan, can help you avoid the need for a large deposit or LMI. But, as it’s a serious financial obligation, it’s vital both parties get expert financial advice before deciding on this option.
• Family Assistance: Instead of acting as guarantor, parents or family members can gift or lend you money to boost your deposit, providing a valuable helping hand. In fact, the “bank of mum and dad” has become one of the largest lenders in Australia, as more and more parents are helping their children buy homes.

3. How much can I borrow?

The amount you could borrow depends on various factors, including your income, expenses, existing debts, credit history, and the lender's criteria. Use a mortgage calculator to get an estimate of how much you may be able to borrow, or work with a mortgage broker who can assess your financial situation and help you determine a suitable borrowing amount.

4. What other costs do I need to factor in?

Aside from the deposit and loan repayments, it's important to factor in the additional costs associated with buying a home. These may include:

• Stamp Duty: A tax imposed by state governments when buying property, which varies from state to state but can be a significant amount.
• Legal and conveyancing fees: These are the costs associated with legally transferring ownership of the property, and can range anywhere between $800 and $2,500.
• Building and pest inspections: To identify any potential issues with the property, it’s vital you arrange building and pest inspections before you go ahead with the sale.
• Loan fees: Application fees, valuation fees, and ongoing account-keeping fees charged by the lender will generally be included in your home loan.
• Moving costs: Lastly, keep in mind the expenses related to moving your furniture and belongings into your new home.

5. How can a mortgage broker help?

When it comes to buying a first home, working with a mortgage broker is invaluable. A mortgage broker can act as intermediary between you and potential lenders, offering expert advice and assistance throughout the home buying process. They can also:

• Assess your financial situation and help you understand your borrowing capacity.
• Compare loan products from different lenders to find the most suitable option for your needs.
• Navigate the complexities of the home loan application process, saving you time and stress.
• Provide ongoing support and guidance, even after your loan is settled.

Understanding the basics

Buying a first home is an exciting milestone but it can also feel overwhelming. Having the right team on your side ensures a smooth and successful journey. If you’re ready to take the next steps towards home ownership, contact Mortgage Express to connect with a mortgage broker near you and get expert guidance and advice designed to help you achieve your home ownership goals much sooner.

While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.

Finservice Pty Ltd (Mortgage Express) is authorised as a corporate credit representative (Corporate Credit Representative Number 397386) to engage in credit activities on behalf of BLSSA Pty Ltd (Australian Credit Licence number 391237) ACN 123 600 000 | Full member of MFAA | Member of Australian Financial Complaints Authority (AFCA) | Member of Choice Aggregation Services.