Home loan deposits: A beginner’s guide

Let’s take a look at the basic facts about home loan deposits. The more you understand the options available, the better equipped you are to find a way onto the property ladder. As your mortgage broker, we can provide the expert guidance you need to find an affordable way into the home loan market.

The size of your deposit

A 20% deposit is the norm, but it’s possible to take out a home loan on a smaller deposit. The advantage of a 20% deposit is that you won’t have to pay lenders mortgage insurance as you are borrowing 80% of the value of the property.

Remember to put aside enough money to cover the rest of the fees and charges associated with buying a home.

A small deposit

There are lenders willing to accept home loan deposits as small as 5%. The downside of a small deposit is larger loan repayments. You’ll also have to wear the cost of lenders mortgage insurance and higher interest rates.

If you’re having trouble saving a deposit, you may want to consider options like asking your parents to give you a ‘gift’ of the deposit amount. Alternatively, if your parents own their home and will act as guarantors, some lenders may allow you to borrow up to 100% of the purchase price.

What LVR means

Loan-to-valuation ratio (LVR) is the term used by lenders to determine the risk factor of the home loan. LVR is the amount of money you borrow for a loan divided by the value of your property – and expressed as a percentage.

An 80% LVR means the lender is willing to lend up to 80% towards the purchase of your new home.

The cost of lenders mortgage insurance

Lenders mortgage insurance (LMI) is a one-off fee that protects the lender if you can’t repay the loan. When you have less than a 20% deposit saved, most lenders will make it a condition of loan approval that you have LMI.

Depending on the lender, you can usually choose to pay LMI up front or add it to your loan repayments.

The cost of LMI varies between lenders and is based on factors like LVR and how much you borrow. For some borrowers, it might end up as a few thousand dollars, but for others, it can be tens of thousands of dollars.

Discounts based on your profession

Certain professions are perceived as less of a risk by lenders. If you are a doctor, lawyer, accountant, financial planner or engineer, for example, you may be eligible for perks such as waived fees and a lower home loan rate.

Give us a call for details on any of these home loan deposit issues, or to answer your questions about borrowing to buy your first home.

Veki Brdjanin

P 03 9644 3830
E veki@uniqgroup.com.au