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How Much Deposit Do I Need For a Home Loan?

Kevin Gomer
15 Apr 2016

What is the minimum deposit I need?

It is very rare for a home loan provider to offer a 100 percent loan – in the vast majority of cases you will need a deposit to pay for a portion of your home up front. The amount you’ll need depends on the loan to value ratio (LVR) of the home loan you have chosen.

The loan to value ratio is simply the amount of the home’s value that your home loan provider will cover. For example, if your home will cost $300,000, and your LVR is 80 percent (i.e. the lender will give you 80% but you must front a lump sum of 20%), you will need a $60,000 deposit. In most cases, if your LVR is higher than 80 percent, you will also need to have lenders mortgage insurance (LMI), which raises the cost of your loan overall, so a minimum of 20 percent of the cost of the property you wish to purchase is usually advised.

What is the average minimum deposit figure in Perth?

In Perth, the average home costs about $540,000, so in order to keep your LVR at 80 percent and avoid paying for lenders mortgage insurance (LMI), you would need a 20 percent deposit of $108,000, plus stamp duty, which could be as much as an additional $24,000. Therefore the average deposit needed to buy a home in Perth at the best overall rate is roughly $132,000.

However, everyone’s situation is different and Nicheliving Home Loans are here to help you find the best deal for you – both now and in the future. If necessary, it is possible to negotiate a lower deposit with your home loan provider. And also note that Nicheliving homes are generally priced below a suburb’s median house price – so between us and our sister company we can help you find the best home and home loan for you!

What is the benefit of saving a more substantial deposit?

Larger deposits offer numerous benefits to homebuyers who are looking at home loans.

  1. If your deposit is lower than 20 percent of the value of your home, it is likely that you will need to pay for lenders mortgage insurance which can add significantly to the overall cost of your loan.
  2. A higher deposit requires a smaller loan, which ultimately lowers the cost you will pay in interest, and will allow you to access lower interest rates. The less you owe, the faster you will be able to pay it off, and the sooner you will own your home outright.
  3. The more money you have saved for a deposit, the greater the loan you will be able to take out – i.e. the greater the deposit you have saved the more realistic it will be that you can will be approved a loan for your dream home!

Which is more beneficial: Get on the property ladder early or rent until I can save a substantial deposit?

It is always best to discuss your unique situation with a qualified mortgage lender. Every situation is different, so there is no one-size-fits-all answer to this question.

However, take this scenario as an example:

Compare the difference in paying $450 per week in rent to paying $600 per week for a mortgage. By renting, you’d save $150 per week, or $7,800 per year. Based on the average deposit needed in Perth as outlined above ($132,000) – at this rate, with no other savings, it would take you nearly 17 years to save enough for your home! However, on the other hand you need to consider that getting on the property ladder with a deposit of less than 20 percent means you will have to take out lender’s mortgage insurance, adding to the cost of your loan in the long-run.

As you can see it is difficult to give a definitive answer to this question without knowledge of the variables in your individual situation. Your savings, income, rent costs, desired home and many other reasons will determine whether you should purchase a home sooner.

It is always best to come speak to a professional about your situation, and that’s where we can help – with, free advice!

How can Nicheliving Home Loans help?

Seen a home you want to buy? Estimate the deposit you’ll need now with our  .

However, it’s always best to discuss your situation with a professional, and obtain the most accurate and relevant advice for your new home and financial situation. Contact Nicheliving Home Loans today to get free, no-obligation advice on how much deposit you need to save.