Being a homeowner is a major accomplishment.
But actually getting there can be a daunting ordeal from choosing a location to qualifying for a mortgage. Every lender has different requirements but all require a down deposit. The size of your deposit is important for the following reasons:
- Qualify for a lower rate: A larger deposit is an indication to lenders that your finances are in order. This puts you in a far better position to negotiate a lower rate.
- Avoid paying LMI: Lenders Mortgage Insurance is required if you borrow than 80% of a property’s purchase price. Putting down a larger deposit means not having to pay LMI.
- Pay less: The more you put down the less you borrow. This ultimately means paying less interest over the course of the loan.
The down deposit is easily one of the most important aspects of a loan. But how much do you need to buy your first home?
Minimum Deposit Required
Unless you have a guarantor, lenders no longer offer 100% home loans.
Lenders typically require deposits of at least 5% of a property’s purchase price. So for a loan worth $400,000 you would need to put down $20,000. Keep in mind this doesn’t include additional costs such as stamp duty and legal fees.
Every lenders has its own lending criteria and minimum deposit requirements. Consult with a broker to know the policies of each lender.
Lenders Mortgage Insurance
Not every borrower is in a financial position to put down a 20% deposit.
Lenders Mortgage Insurance (LMI) allows first home buyers to borrow up to 95% of a property’s purchase price. But the borrower will need to pay for LMI which is calculated based on the loan amount, the deposit, and the property itself. LMI protects the lender against default.
LMI is a one-off payment but most lenders allow it to be capitalised into the loan. Putting down at least 20% or having a guarantor back your mortgage means you can avoid paying for LMI.
Should You Wait?
It’s an important question to ask.
Should you wait until you have a larger deposit? Or look at purchasing once the minimum requirements are met?
On one hand, putting down a larger deposit gives you leverage to negotiate a better rate and means not having to pay for LMI. But on the other hand, property prices are only expected to continue to increase. Waiting means potentially missing out on numerous opportunities.
The answer ultimately depends on the borrower. If you feel you could comfortably take on mortgage repayments, then now could be a good time to buy your first home.
Have any more questions?
Buying a home can be a lengthy and complicated process. FHOC is here to answer any of your questions and help you get into the home of your dreams. Contact us today to schedule an initial consultation with our experts.
First Home Owners Centre Contact Information
24/7 Sales Enquiry Line: (08) 6144 1088