Do I have enough deposit?
The banks (and the media) often talk about a 20% deposit. Which, on a $800,000 purchase is $160,000… However, the reality is we see many people with a much smaller deposit come to us looking to buy a first home and that still works! Usually the minimum you need is about 5% (as genuine savings*). So on a $800,000 purchase that is only $40,000. A little easier to manage!
But that is the simplified version. Where it gets tricky is there are possibly other costs like stamp duty, LMI and solicitor fees that need to be covered. Here is an indication what these can add to your cost:
- Stamp duty is about 3% of the purchase price. So on a $800,000 purchase about $24,000. You might be exempt (in full or partial) from stamp duty but there are criteria. Here is a great place to check.
- Lender Morgage Insurance (LMI) is a risk fee lenders charge if the loan is over 80% LVR. The cost depends on actual loan amount and the LVR and can easily be $5,000 or more. It is harder to avoid but there is a government program call the First Home Loan Deposit Scheme which can cover this.
- Solicitor fees. To buy a property in Australia, you need a solicitor or conveyancer. This person checks the contract, does the title searches and arranges settlement with the vendor. An average fee is between $1,200 and $2,000
Those are the major cost. We normally advice to keep some savings aside as emergency funds and allow for moving, rates and insurance. So whilst the minimum is about 5%, a realistic figure is about 8% or even 10%.**
Some lenders accept less than 5%
Where do these funds need to come from? Not all funds (or in all circumstances) need to come from savings. They can also come from:
- A Gift. If a family member or other person provides the deposit, it can be accepted as long as it is a “non refundable gift”.
- Via a Guarantor. A guarantor is a person who is offering equity from their property as additional security for the loan. Read more here.
* Genuine savings are funds you have accumulated over time. The banks can accept funds as genuine if they can see the money in your account over a 3 months period. It is fine to have the amount required by the end of that 3 months if you have been adding regularly.
** There are a few lenders who will accept less than a 5% deposit or a deposit from “non genuine savings”. For more information on this, get in touch with us.