One of the biggest misconceptions about buying a home is that you need a 20% deposit before you can get started.
While a larger deposit can certainly provide benefits, many first home buyers in Perth are entering the property market with significantly less.
In fact, depending on your circumstances and the lender’s requirements, it may be possible to purchase your first home with a deposit of just 5%.
So, how does it work and what should first home buyers know before taking this path?
What does a 5% deposit look like for a first home owner?
A 5% deposit means you’ve saved an amount equal to 5% of the property’s purchase price.
For example:
- A $500,000 home would require a $25,000 deposit
- A $600,000 home would require a $30,000 deposit
- A $700,000 home would require a $35,000 deposit
For many first home buyers, saving a 5% deposit can feel far more achievable than trying to save the traditional 20% deposit.
Do lenders offer 5% deposit home loans?
Yes, some lenders offer home loans that allow eligible buyers to purchase with a 5% deposit.
However, approval is based on a range of factors, including:
- Your income
- Your employment history
- Your credit history
- Existing debts and financial commitments
- Your ability to meet loan repayments
Every lender has different lending criteria, so it’s important to understand which options may be available based on your individual circumstances.
What are the benefits of buying with a 5% deposit?
One of the biggest advantages is that you may be able to enter the property market sooner.
Rather than spending years trying to save a larger deposit, some buyers choose to purchase earlier and begin building equity in their own home.
A smaller deposit may also help buyers take advantage of available grants, incentives and current market opportunities rather than waiting for property prices to increase further.
For many Perth first home buyers, a 5% deposit can make home ownership feel much more achievable.
Are there any additional costs
While a smaller deposit can help you get into the market sooner, there may be additional costs to consider.
Depending on the lender and loan structure, buyers with less than a 20% deposit may need to pay lenders mortgage insurance (LMI). This is an insurance premium that protects the lender if the borrower is unable to meet their loan obligations.
The amount payable can vary depending on the loan size and deposit amount.
It’s also important to budget for other purchasing costs, which may include:
- Settlement fees
- Loan establishment fees
- Building inspections
- Moving expenses
- Home and contents insurance
What grants and incentives could help?
Eligible first home buyers in Western Australia may be able to access a range of government incentives that can help reduce upfront costs.
Depending on your circumstances, these may include:
- The First Homeowner Grant
- Stamp duty concessions
- Government-backed home ownership initiatives
- Low deposit lending pathways
These incentives can make a significant difference when purchasing your first home and may help you enter the market sooner.
What if you’re building a home?
Many first home buyers choose to build because it can provide access to modern homes, greater design flexibility and potential government incentives.
House and land packages are particularly popular in growing Perth suburbs such as Byford, Alkimos, Eglinton, Ellenbrook and Hammond Park.
Building may also provide access to incentives that are only available for new homes, making it an attractive option for eligible buyers.
Is a 5% deposit right for you?
While buying with a 5% deposit can be a great opportunity, it isn’t the right solution for everyone.
Some buyers may prefer to save a larger deposit to reduce their borrowing costs and increase their financial flexibility. Others may decide that entering the market sooner is the better option.
The right choice will depend on your financial circumstances, goals and borrowing capacity.
Taking the next step towards home ownership
If you’ve been putting off buying because you thought you needed a 20% deposit, it may be worth exploring your options.
Many Perth first home buyers are surprised to discover that home ownership may be possible with a much smaller deposit than they expected.
Speaking with a finance specialist can help you understand your borrowing power, available incentives and the loan options that may be right for you.