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How Much Deposit Do You Need to Buy a House

How much deposit do you need to buy a house?

When it comes to buying a home, the biggest obstacle for most people is the deposit. Finding ways to save and gather up what can seem like an impossible amount can be enough to put many buyers off trying. 

If you’ve ever wondered how much of a deposit you need to buy a house in Perth or in Australia generally, the answer, truthfully, is that it can vary – and by a lot! 

There are several factors to look at when determining how much of a deposit you will need to buy a house and in some instances, it may be much less than you think. 

To help you make sense of this home-buying step, we’ve prepared the following easy-to-understand guide. 

 

What Is A House Deposit Exactly? 

A house deposit is a cash amount that a buyer pays upfront to cover a percentage of the purchase price of a property. 

Significant deposit amounts are usually required by lenders in order to secure a loan for the remainder of the property price. 

 

How Much Deposit Is Needed To Buy A House?

Depending on your lender and your circumstances, this can be anywhere from 5% to 20% of the purchase price. 

As an example, if you are purchasing a property worth $400,000 your cash deposit would ideally be $80,000 or higher. Many lenders or banks will provide a house deposit calculator tool to help you figure out how much they expect you to have saved. 

As there are many variables affecting loan criteria, it is advisable to speak with a specialist rather than solely rely on a mortgage calculator to guide your approach. 

Additional Costs To Cover With Your Deposit

While your chosen bank or lender may require a set deposit amount, it is important to not only focus on this number. 

There are other costs to factor in that may not be able to be covered in your approved loan amount. These include stamp duty, where applicable, solicitor/conveyancer fees and potentially Lenders Mortgage Insurance (LMI).

The latter is usually required by lenders whenever the provided deposit is under 20% of the purchase price. Paid as a percentage of the loan amount, this is a once-off cost that serves to protect the bank in the event that you default on the loan repayments. 

 

Why Lenders Place So Much Importance On Deposits

As alluded to above, banks and other lenders view home buyers with minimal deposits as higher risk as the borrowed amount is higher and repayments higher as a result. 

When you have a larger deposit, you own more of the home upfront and require a smaller loan – this may also enable you to pay it off more quickly. 

From the bank or lender’s perspective, this makes it more likely that you will be able to manage the loan amount and that they will get their money back without any defaults.  

Other Factors Lenders Look At

It is important to note that having a large deposit is not the only deciding factor when it comes to being approved for a home loan. 

You could be gifted a deposit as an inheritance or similar and still be denied a loan. Why? Because your overall financial health will also be reviewed when applying for a mortgage. 

Banks and lenders will assess:

  • Your spending and saving habits over time
  • Your income 
  • Whether you have any existing debts and their value
  • How many credit cards you hold in your name and their available limits
  • Your credit score or credit rating

If you have ever defaulted on repaying a debt or have unpaid bills, have applied for and been rejected for credit/loans in the past or similar, your credit score may be affected. 

A low credit score or rating flags you as a high-risk borrower to any lending institution and indicates that you may not be relied upon to repay a home loan. 

For this reason, focusing on your spending and saving habits is almost more important than having a deposit. 

Remember, lenders want to see proof over time that you can service a loan and a large deposit is not necessarily indicative of that.

A lender will look at many aspects of your saving and spending to see if you qualify for a mortgage loan

 

What If My Saved Deposit Is Too Little? 

There are an increasing number of banks and other lenders who are willing to accept home loan applications from those with a deposit of less than 20%. 

As indicated above, what they are mostly looking for is your proven ability to repay a loan based on past history and your current income. 

If you score well in these areas and are able to finance Lenders Mortgage Insurance as part of your purchase, you may be able to buy with a minimal deposit of around 5–10% of the purchase price. 

Of course, as with any home loan, you should weigh this option up carefully and ensure you can comfortably cover the repayments on such a high loan amount. 

3 Ways To Help Boost Your Deposit Amount

If you have been diligently saving away and are feeling discouraged at how slowly your balance is rising, don’t forget there are some ways in which you can help speed this up.

  1. Place your savings in a high-interest account that rewards you with better interest for making regular deposits and no withdrawals each month.
  2. Track your spending, cut out non-essentials, set a budget and stick to it! Automating your savings each payday is a great way to stay on track. 
  3. Look into available government grants or offers. In Western Australia, the First Home Owners Grant (FHOG) provides up to $10,000 towards the purchase or building of a home for eligible buyers. Additionally, stamp duty may be waived or reduced too, helping you reach your target sooner. 

 

Is It Possible To Buy A House With No Deposit? 

There are circumstances where it may be possible to secure a low or no-deposit loan.

In these situations, up to 100% of the property price may be borrowed and the need for Lenders Mortgage insurance is also waived. However, there are of course stringent criteria and conditions to be met. 

There are two main types of no or low-deposit loans available for eligible buyers:

Guarantor Home Loans 

In this scenario, a trusted family member such as your parents, grandparents or siblings uses their own property equity to guarantee the loan amount. 

20% of the property value is put up as security against the new loan, allowing for 100% of the property price to be borrowed and eliminating the requirement for LMI as a result. 

While this does not alter the family members’ own mortgage repayments, it can cause problems for them if you default on your loan, so it is important to make sure your guarantor understands this risk in full. 

Once you have paid down 20% of the loan amount or your home increases in equity to an equivalent amount, you can then release the guarantor from this arrangement. 

Equity Home Loans

If you have invested in property previously you may be able to use this in a similar way to a guarantor loan. 

Using the equity in that property as your deposit, you may be able to secure a loan up to 100% of the purchase price on a second property. 

Of course, this relies on you already owning property and will see you having to pay two mortgages simultaneously, so proceed with caution if going down this route.

Buy and move into your new home sooner than you think

 

Be In Your Own Home Sooner With Stop Renting Perth

At Stop Renting Perth, we’ve experienced the struggles of saving for a deposit and feeling trapped in the renting cycle first-hand. 

We recognise how challenging it is to save while also paying rent and navigating the ever-increasing cost of living. 

Passionate about supporting everyday Australians to achieve their home ownership dreams in spite of these obstacles, we’ve developed proven strategies and a roadmap for success. 

How It Works

Offering an exceptional range of house and land packages in Perth, we have over 70 home designs to choose from. 

Our close connections with developers and private land sellers allow you to build in your ideal location – potentially in your existing neighbourhood. 

In collaboration with you, we review your current situation and determine which of our house and land packages you qualify for. Whether you have savings, zero savings or have found yourself in a tricky financial situation due to past issues, our expert financial team is here to help. 

We oversee every step from the initial consultation to the handing over of keys and keep you informed from start to finish. 

There are no tricks or risky shortcuts involved, just honest advice from seasoned professionals passionate about busting the myths associated with homeownership and deposits. 

With our support, it is possible to be in your own, brand-new home sooner than expected and without waiting or struggling for years to save a deposit. 

If you’re ready to stop renting and start living in your own home, contact Stop Renting Perth today at 0402 513 446. 

See If You Qualify

We’re here to help, so let’s get started! it’s time to stop renting and start taking steps towards home ownership.