One of the first questions almost every home buyer asks is:
“How much deposit do I need?”
It’s a simple question, but the answer depends on your personal circumstances, the property you want to buy, and the lending options available to you. The good news?
You don’t need to understand every rule and acronym before you start planning.
That’s what The Home Loan Nerds are here for.
We take the complicated home loan stuff, explain it in plain English, and help you understand what options may be available based on your situation.
Because you don’t need to become a home loan expert.
That’s our job.
A deposit is the amount of money you contribute towards purchasing a property.
The rest of the purchase price is generally funded through a home loan from a lender.
For example:
If you buy a property for $700,000 and contribute $70,000 towards the purchase, your deposit is 10%.
The remaining amount would generally be borrowed through your home loan (subject to lender approval).
Your deposit can come from different sources, including:
This is one of the biggest myths first home buyers hear.
While a 20% deposit can help avoid Lenders Mortgage Insurance (LMI), it is not the only way people purchase property.
Some buyers purchase with smaller deposits, depending on their circumstances and the lending options available to them.
A smaller deposit may involve additional considerations, such as:
The important thing is understanding the trade-offs and making an informed decision.
Lenders Mortgage Insurance is a type of insurance that protects the lender if the borrower is unable to repay the loan.
It does not protect the borrower.
LMI is commonly associated with loans where the borrower has a smaller deposit and is borrowing a higher percentage of the property's value.
While nobody likes paying additional costs, LMI can sometimes allow eligible buyers to purchase with a smaller deposit rather than waiting until they have saved a larger amount.
Whether this makes sense depends on your individual circumstances.
Potentially, yes.
Some first home buyers purchase with deposits below 20%.
Depending on eligibility, there may be options such as:
Government Support Schemes
Some eligible buyers may be able to access government-supported programs designed to assist with entering the property market.
Eligibility criteria, property price caps and other requirements apply.
Family Assistance
Some buyers receive help from family members, such as gifted funds or other approved arrangements.
Different lenders have different policies around how these arrangements are assessed.
Saving a smaller deposit
Some buyers choose to continue saving until they have a larger deposit, depending on their goals and circumstances.
There is no single approach that works for everyone.
Many lenders look at where your deposit has come from and may require evidence that you have demonstrated the ability to save.
This can include things like:
Lender policies vary, so it is important to understand what a particular lender may require before applying.
A deposit bond can be used in place of a cash deposit when buying a property. Instead of handing over the usual cash deposit at exchange, the bond provides the seller with a guarantee that the deposit will be paid at settlement.
They can be useful when your money is tied up elsewhere, such as in the sale of another property, but they aren't accepted in every situation, so it’s important to check the requirements before relying on one.
They also usually have a fee attached.
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