Saving for a house deposit – how much is enough?

When you’re looking to buy your first home, there’s always a lot to think about and one of the things that can be hard to know is when to stop saving and start looking to buy. In other words, how much is enough when it comes to getting a deposit together for your first home?

Let’s take a look...

Yes, it’s possible to secure a home loan with as little as 5 or 10% deposit, but banks and financial institutions usually recommend a deposit that’s at least 20% of the property’s purchase price, also known as the Loan to Value Ratio (LVR). Bank-speak aside, it just means if you’re looking to buy a property around the $500,000 mark for example, you’d need to save at least $100,000 to have a 20% deposit.

Why 20%?

The less you need to borrow, the lower the risk is for a lender, so a bigger up-front deposit will help increase your likelihood of getting a home loan approved.
And since you won’t need to borrow as much, it means you’ll pay less interest over the life of your loan too. Winning! Plus, having a deposit of 20% or more also means avoiding additional loan costs such as Lenders Mortgage Insurance (LMI).

What is Lenders Mortgage Insurance?

It’s an insurance policy taken out by a lender to protect them in the event that a borrower can’t keep up with their home loan repayments. It will cover the shortfall if the lender has to sell the property, and the proceeds don’t fully cover the balance owing on the loan. Lenders will usually ask you to pay LMI if your deposit is less than 20%, which could amount to thousands of dollars, payable either upfront or rolled into your total loan amount. 

You can find out more about Lenders Mortgage Insurance here.

Can I still buy with less than 20%?

Broadly speaking, yes. It’s possible to borrow with a deposit as low as 5%, but you’ll need to show your ability to service your loan with a good credit history and secure, ongoing employment with enough income to cover your loan repayments and everyday living expenses. In addition to paying Lenders Mortgage Insurance, you might also be asked to provide a loan guarantor. 

Buying your own home can be an important life milestone with all the personal satisfaction that settling down can bring. But it can also be a big step towards securing your financial future, and with housing prices on the rise, you may want to get your foot on the ladder sooner rather than later. If you have a smaller deposit, LMI is one way that can help you do that. 

Stamp duty and other costs

Make sure you allow enough to cover other up front costs that come with buying a home but are often overlooked. As a first home owner you may be eligible for stamp duty concessions in your state or territory, but there are still things like valuation charges, solicitors fees, government charges and building and pest inspections to account for.

Ready to borrow your way?

If you’re looking to buy in the next six months, it can pay to start doing your home loan homework to make sure you find the best value loan for your needs. Our Your Way Plus Home Loan offers special low rates and extra discounts exclusively to essential worker legends like you. Explore more home loan options here.