The Truth About First Home Deposits

When you’re buying your first home, the amount of the deposit you have saved is important— almost as important as the monthly mortgage repayments you can afford. If you’re about to enter the property market, you may have heard that you need to have 20 per cent of the purchase price saved as your deposit. While it certainly helps, this is not always true. Here’s why.

Smaller deposits bring additional charges
Most banks will accept deposits of as little as 5 per cent. First home buyers can be put off from these loan arrangements because they incur additional loan costs. Paying an extra $20,000 for Lenders Mortgage Insurance (LMI) isn’t appealing and at first glance may seem like a waste of money.

Meanwhile house prices are continuing to rise
Entering Australia’s housing market is tough, of that there is no dispute. Let’s say you already have a 10 per cent deposit set aside. If you’re in Sydney, it will take you a full decade to save a further 10 per cent of the median-priced dwelling, at $1121 a month. That’s 22 per cent of the average earner’s wage, for 10 years*.

The truth for many first home buyers is if you wait to have a larger deposit, it’s entirely possible house prices will have increased by twice as much as you’ve saved by the time you reach your goal. Now you’re back where you started! You need to work out what will matter more: the LMI (most of which can usually be borrowed), or property growth.

If this all seems a little speculative, remember you can seek unbiased advice from a professional mortgage broker before making any life-changing financial decisions. A good broker will research available loan options and advise you on suitable solutions for your circumstances. What are you waiting for?

*source: Australian Bureau of Statistics