How Much Deposit Do I Need for a Home Loan?

Buying your first home is a dream come true for many, but the realisation of the dream is never easy. The process can be pretty daunting, from finding a suitable property to saving up and finding a legal advisor.

With the right support to help you navigate finding and financing your home, having your residence can be highly rewarding. In this article, we will look at how to secure your home and minimise the stress that comes with such a significant financial commitment.

An important thing you have to consider when buying a house is how you will finance the purchase, that is, your home loan. It is best to consult with your home loan broker in Brisbane before buying your new home.

In the following key considerations, we will discuss ways in which you can reduce your home loan burden and how a deposit will help you reduce your home loan:

Income and Expenses

A more significant portion of the home loan depends on how much you earn every month. Banks and financiers will use this to decide how much you can repay. Therefore, you need to look at monthly expenses and financial commitments before taking a home loan.

Saving History and Credit Rating

If you’re thinking about buying a house in the foreseeable future, we’d suggest you save for a deposit. But, first, consult with your home loan broker or mortgage broker in Brisbane on how the amount of deposit you will require to be in the best position to apply for your loan.

Saving for a deposit shows that you’ll be able to manage home loan repayments. Furthermore, if you start saving for three months or more, it’ll aptly show that you have saving capabilities.

In the case of a home loan, the lender will look at your credit history too. Your credit history shows how much you’ve been able to repay your debts. In addition, several credit agencies can help you look at your credit online.

Deposit Savings

How much you can secure for your home loan depends on the deposit. If you pay a bigger deposit at the time of loan settlement, your loan will be smaller, and you can pay off your loan faster.

Generally speaking, most financiers will require a 20% deposit. They require you to commit 20% of the property’s value, and your home loan will contribute 80%.

Some financiers might accept a 10% deposit with the condition of Lenders Mortgage Insurance. 

If it is difficult to save a 20% deposit, you may have someone who can be a guarantor for you. They guarantee you and will be financially liable if you do not repay the loan. A guarantor may give you a little more borrowing power.

Your deposit is determined by a calculation called the Loan To Value Ration. Or LVR. To calculate the LVR, divide the loan amount by property.

For example, if you have a $50,000 deposit.

You want to borrow $450,000 on a $500,000 property.

The LVR will be calculated as $450,000÷$500,000×100=90%

You are financing 90% of the property value.

If the LVR is less than 80%, LMI (Lender’s Mortgage Insurance) typically won’t be required. However, if you’re borrowing more than 80% of the property value, you will likely be liable for Lender’s Mortgage Insurance.

First Home Owner’s Grant

If you’re buying your first home, you can apply for a home owner’s grant in Australia. If eligible, you’ll get $15,000 for buying or building your new home. Depending on how you apply, you will receive the grant at the property settlement or after.

Type and Length of Home Loan

Your borrowing ability is affected by the type of home loan and the associated interest. A lower interest rate means your repayments will also be lower.

Prolonging your loan means you can borrow more, but it will also increase the total amount of interest you might have to pay at the end of the loan period. Consider all the points, consult with a mortgage broker in Brisbane, and find home loan options that suit your goals and budget.

Ellen Hollington

Ellen Hollington is a freelance writer who offers to ghostwrite, copywriting, and blogging services. She works closely with B2C and B2B businesses providing digital marketing content that gains social media attention and increases their search engine visibility.