Why you need a deposit
When you are ready to begin looking for your first home, a key starting point is knowing how much you can afford to pay in monthly loan repayments. This will help determine the size of the loan you can take out, and therefore the type of property you can afford to buy.
The size of your purchase deposit is very important for several reasons:
100% loans typically no longer exist
Generally it’s no longer possible to get a loan for the whole of a property’s purchase price. Most lenders will want you to put down at least 5% of the purchase price of the property. The rest - generally up to 95% - may be financed using a home loan.
A larger deposit may mean a lower interest rate
The larger your purchase deposit, the less risk you represent to lenders, and this puts you in a better position to negotiate a lower interest rate.
Avoid paying Lender’s Mortgage Insurance
If you can put down a deposit of 20% or more than, you can often avoid paying what’s known as ‘Lender’s Mortgage Insurance’ (LMI). This protects the lender – not you, if you cannot repay your loan so it’s a cost worth avoiding if possible.
Pay less in the long run
The bigger your deposit, the less you have to borrow. That means lower regular repayments, and you’ll pay less in interest over the lifetime of the loan. Use our Loan Repayment Calculator to see how much you could save by having a larger deposit.
More loans to choose from
A bigger deposit can also give you a wider choice of loans, and that makes it easier to get a good deal on the right loan, letting you save even more in the longer term.
Financial support for first home buyers - getting the FHOG
First home buyers may be entitled to a range of government grants and concessions that vary according to which state or territory you are buying your home in.
The First Home Owner Grant (FHOG) is the main source of financial support for first home buyers. It’s a one-off, tax-free payment to people buying their first home in Australia however state and territory governments hand out the FHOG on behalf of the Federal Government so it’s worth checking how it works in your area.
Broadly speaking, the main conditions that determine eligibility for the FHOG in most – though not all – areas in Australia are set out below:
- You must be an Australian citizen or permanent resident buying or building your first home in Australia
- The property you buy must be a recognised house, unit or flat specifically designed for people to live in
- You or your partner must not have purchased in Australia before
- You must occupy the home for a period of at least 6 months within 12 months of settlement or within 12 months of building completion if it’s a newly built home
- You must apply for the grant within 12 months of settlement or building completion. The grant will be paid at the time of settlement or building completion or where you apply after this time subsequent to your application
- Contracts must be exchanged between the buyer and seller before any cut-off dates.
For more up to date information, your Aussie Mortgage Broker can tell you about the perks you may be eligible for.
Continue to information about choosing the right loan and considering the costs.