Article by Davina Deluao
When it comes to buying a property, one of the first steps in the process is saving up for the home deposit. This is a big hurdle, for first home buyers in particular with property prices continuing to surge across the country. According to the government website Moneysmart it takes the average Australian 4.6 years to save a 20% deposit, which will obviously vary depending on where you live.
In this article, we’ll answer a few questions regarding home deposits and how to be well prepared when it comes to having enough to buy your first home.
Although most Australian lenders no longer provide zero deposit home loans, you may apply towards a low deposit home loan instead. With this option, you’re required to deliver 5% of the home deposit rather than the ideal 20%. However, with this option, it’s important to keep in mind that you will often be expected to pay higher interest rates and the Lenders Mortgage Insurance (LMI). LMI will vary on the amount you are looking to borrow but is compulsory if you are borrowing more than 80% of your home’s value.
Ultimately, you avoid being charged LMI and having to borrow more money - meaning more debt and higher repayments. Hence, a 20% home deposit is considered to be the ideal deposit benchmark. Having it often gives you access to more mortgage options with better interest rates and repayment plans. It also demonstrates to the bank that you’re a responsible saver who is less likely to default on repayments.
1. There are a few buyers who opt towards using a guarantor home loan which usually involves an immediate family member who agrees to be held liable if you can’t meet your payments. They are then responsible for offering their entire property or an agreed amount of equity which is called a family guarantee. The guarantor will need to satisfy necessary conditions such as having enough equity, a stable income, and property located within Australia.
2. Alternatively, there are currently a number of Government grants and incentives available to help homebuyers secure their own home, with new and existing initiatives recently announced in the 2021 Federal Budget. The First Home Loan Deposit Scheme and the First Home Super Saver Scheme are worth looking into if you are a first home buyer. Of course, the First Home Owners Grant may also help you cover some of your deposit costs. And for single parents with dependants, the Family Home Guarantee has been introduced. All of these schemes have been introduced to help homebuyers enter or reenter the housing market with minimal deposits. As with anything, make sure you check your eligibility for any grant/incentive before entering into a contract.
3. If you are not a first-time buyer but are looking to invest, you can utilise the equity from an existing property that you own to cover the home deposit. This way you don’t need to find a guarantor and can build up your portfolio.
There are multiple approaches to delivering a deposit which is why carefully researching every aspect and laying out the different options available to you is a good idea. While it won’t happen overnight, taking the time to be diligent with your savings and embracing available incentives or the help of a willing family member, will hopefully lead you to reach your goals of property ownership.
Have a deposit but can’t afford to buy in the area you want to live in? Consider rent-vesting.
If you’re wanting to find out more about home deposits and receive free property advice, chat with the friendly iBuyNew team today about how we can help you secure the right property for you.