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House Deposit Savings: How to Get There

18th Nov, 2020 | First Home Buyer

In this article:
When it comes to home loan deposits, bigger really is better. We tell you why.

No one said saving for a deposit on a home is easy. There’s a lot to consider and many factors come into play, but it’s something you can achieve with a little time and careful planning.

How much do I need for a house deposit?

As a rule of thumb, you should be aiming for a minimum 20% home loan deposit. While some lenders are willing to lend 100% of the purchase price, these types of loans come with strict lending criteria and conditions, such as having a guarantor on the loan.

For all loans, you’ll also need to save for costs associated with buying a home. Known as ‘up-front costs’, they include:

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How long will it take to save a home loan deposit?

It’s a good idea to understand not only how much you’ll need to save for a home loan deposit, but also how long it will take. How much you’ll need depends on property prices in the area you’re looking to buy. It goes without saying that property in Sydney will cost much more than a property in a rural or regional area.

Don’t become disheartened if it seems like it will take you ages to save, because banks and lenders will love seeing your fiscal discipline in action and it will make you a good candidate for a home loan.

Why should I aim for a bigger deposit?

Lender’s mortgage insurance – If you have anything less than a 20% deposit, you’re seen as a riskier borrower and banks will usually require lender’s mortgage insurance (LMI). LMI is charged to you and protects the bank if you default on your home loan repayments.

Less interest over life of loan – If you have a larger deposit, your loan amount will be lower. You’ll save significant interest over your loan term, and you may even be able to pay it off sooner.

Better interest rate – Many banks and lenders offer tiered interest rates to reward borrowers who are deemed lower risk. Calculated under the Loan to Value Ratio, or LVR, you’ll often find different rates for different LVR percentages. Lenders determine your LVR as a percentage of the value of the property you’re buying.

Genuine savings

Are you someone who’s always put money aside ‘for a rainy day’? Do you have a budget you stick to week-in and week-out? Banks and other lenders love to see these kinds of disciplined saving strategies, even if you haven’t quite managed to save a 20% deposit. Why? Because the ability to save money consistently and regularly means there is greater chance of you meeting your monthly mortgage repayments.

Having a budget and saving money regularly, even if it’s only a small amount, will go a long way to securing a mortgage in the future.

First Home Loan Deposit Scheme

If you’re a first home buyer, most Australian states and territories have grants or concessions for first home buyers. You may also qualify for a place under the Federal Government initiative, the First Home Loan Deposit Scheme (FHLDS), designed to help first homeowners get onto the property ladder.

Just as every journey starts with a first step, every home loan deposit begins with a first dollar. By establishing good budgeting and saving habits early, you’re setting yourself up for when you’re ready to buy your own home. We can help you calculate how much you’ll need. Speak to a Yellow Brick Road mortgage broker today.