Knowing how much you will need as a minimum deposit on a home is vital to you securing a loan. Generally speaking, you can looking to buy once you have around 5% of the purchase property price. However, you may require Lenders Mortgage Insurance (LMI) if you have between 5% and 20% of the purchase price. LMI is an insurance payment that protects your lender against loss should you fail to repay your home loan. This insurance allows you to lend a larger percentage of the purchase price and is included either in you upfront costs or in your loan repayments.
Minimum Deposit Amount Examples
Let’s look at some examples of home loan minimum deposit amounts. These examples exclude the money you may need to pay in upfront costs.
|Property Purchase Price||Minimum Deposit|
|With LMI||Without LMI|
|% of purchase price||5%||20%|
How Much Can You Afford to Borrow?
One of the easiest ways to calculate what you can afford to borrow is to use a Budget Planner. Include all income such as wages, any government entitlements, and child support payments.
Next, write down all your expenses. Estimate how much you spend on utilities, your car and on groceries. Also, include any insurances, and any other monthly or annual costs. Do not include your rental payment, as you will no longer be paying this when you have a mortgage.
Later, break these figures down into a monthly amount. This approach will give you an excellent idea of your monthly spending. You will also be able to determine what you have leftover every month.
Lastly, use a home loan calculator to work out what you can afford to pay monthly on a loan. Compare cuurent home loan rates and then put this up by 2 percent. By making your interest rate higher, you will give yourself a buffer if should rates rise.
What Upfront Costs are Involved?
It is important to budget for the upfront costs of buying a home as this will be in addition to your monthly repayments. Upfront costs typically include:
+ Stamp duty
+ Mortgage title transfer fees
+ Council rates
+ Emergency services levy
+ Conveyancing costs
Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans.