A home deposit
The golden number and how to get there
If you’ve decided that the next step in your life is to purchase a home or property, you’ll need to work out the amount you need for a deposit. This can also help with working out whether buying is the right next step for you.
How much will I need?
An ideal deposit is 20 percent of the total property value. For example, if you are looking at properties for around $500,000, you will be looking at a deposit of approximately $100,000.
Freaked out? Don’t be, if this doesn’t feel achievable, it doesn’t mean you are out of the game. Some lenders will loan you up 95 percent of the property value, there may just be some additional costs. Bank Australia can provide loans of up to 95 percent for first home buyers purchasing property with a maximum loan value of $600,000.
When you are borrowing more than 80 per cent of the property’s value (i.e. you have a deposit of less than 20 percent) you’ll most likely need Lenders Mortgage Insurance (LMI). This an additional lump sum payment that protects the bank in case you default on the loan. How much LMI you pay depends on how much money you borrow and your location.
While the deposit is the biggest upfront cost you’ll have it’s also important to think about the other costs involved in buying a home such as stamp duty, inspection and legal fees and insurance. These costs can quickly add up so be sure to consider them when calculating how much you’ll need to buy your property.
Once you’ve worked out the deposit you’ll need, it’s time to work out how you’ll reach your savings goal. There a few things you can do to help you get there (and make it feel less overwhelming along the way.
- Look at assistance that might be out there - You might be eligible for a government grant or a family member might be able to act as a guarantor.
- Set your savings goal - While you’ll have your golden number (your deposit) think about breaking it down into smaller milestones, such as a monthly or yearly savings targets. And, make sure you celebrate when you reach them.
- Create a realistic budget and stick to it - Work out exactly where you can make savings based on incomings and outgoings, but still allow yourself some money to live. Calculate how much you can allocate to a separate savings account at each pay day and try not to touch that money.
- Consider your options to maximise your savings - It’s good to look at how you can make your savings work. Consider placing your money into a high-interest savings account, or if you’ve already got a bit of money lying around, you could consider putting it into a term deposit where you can’t touch it for a fixed period of time. Out of sight, out of mind!