If you’re thinking that it could be a good time to buy your first home but aren’t sure about how you can get your foot onto the property ladder or if you have saved enough of a deposit, what are your options?
How much deposit do you really need?
Having a deposit worth at least 20% of the purchase price will mean you avoid paying lenders mortgage insurance. But there may still be ways to buy your first home with little or no deposit.
If you are going to go it alone as a single or as a couple, or even friends or siblings buying a place together, then you will need at least 5% of the purchase price as a deposit – that’s the minimum some lenders will accept. Be aware though, generally lenders want to see some evidence of what they term “genuine savings.
Two possible options are available.
Option 1: To demonstrate that you have what it takes to handle a home loan, lenders generally want to see your savings account statements for a period of three months, to show that you have been on track with your savings.
Importantly, lenders are looking to see that money has been saved consistently so that your savings have steadily risen. Any lumps sums from something like a tax refund, should sit in your savings account for at least three months.
Option 2: If you have not been able to save effectively because you are paying rent, you may still be able to use this to your advantage. You can use evidence that you have been paying rent through a real estate agent instead of saving to demonstrate that you have been disciplined with this type of commitment. However, you will likely still need to come up with the 5% deposit.
There are different ways to buy your first property with little or no deposit, but before you make a decision on which one is right for you, speak to a mortgage expert to explain all the options and what it means for you.
Alan Taylor is a Senior Mortgage Broker at Aussie Paddington. He has been with Aussie since 2001. He is a fully accredited mortgage broker with the Mortgage & Finance Association of Australasia (MFAA) and can be contacted directly on 0419 410 233 or send him an email at firstname.lastname@example.org
This article was originally published in 2012 and has been updated.