Around 10 years ago, property investors and even general homebuyers could access 100% LVR loans. In other words, it would be possible for you to borrow a loan that would cover you for the entire value of the property. Loans as high as 105% were available too, but now things have changed. Lending criteria is now stricter, and a lot of banks and loan providers are taking steps to try and lower the Loan Value Ratio. If you do not have much of a deposit, or if you are not in a position where you can wait long enough to save up for a house deposit, then are you in a position to get a loan? Take a look below to learn more about the process of buying a house in Australia with a low deposit.
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Big Banks and their Position with Low House Deposit Applicants
The Big Four banks in Australia tend to be willing to finance a home purchase, as long as there is a 5% deposit. CBA and NAB will lend at a 5% deposit, even if you only have a single payslip. You don’t need to show strong employment, if you opt to go through a particular lender. Other examples of this would be Connective Essentials and Pepper. Genuine savings is required from the Big Four banks for 95% loans, but it is possible to find other lenders that do not require this.
How Much of a Deposit do you Need?
So how much of a deposit do you need to buy a house in Australia? The general rule is that you need 5%. This is of course, the minimum amount that you need to have. The lower your deposit is, the higher the risk to the bank. If you want to increase your chances of getting accepted, then putting down just 2% more could tip the scales in your favour. You need to remember that the 5% deposit covers your deposit only, and that there will be other costs associated with buying a property, including solicitor fees, LMI and stamp duty.
If you are buying your first home in Australia, it is essential to be aware of all the other costs involved in this process. For more info, please check our article Breaking down hidden costs of buying a home in Australia.
Why do I Need to have a House Deposit at All?
Many people wonder why they need a house deposit at all if they have a good employment history. Others think that they need to build a deposit of around 20%, just to get accepted. The truth is that you just need 5% plus any additional costs. If you put down $100,000 as a deposit for a property worth $1 million, then this won’t cover you, when you consider stamp duty, LMMI, solicitors and Rego. $100,000 in NSW may put you in a position where you can buy a property for $800,000, meaning that your property deposit is above 10%. As you increase the price, so does the demand for a higher deposit. For properties under $600,000, a 5% deposit plus cost will suffice.
A Quick Example
So, let’s say you plan on buying a house in Australia, and you see one valued at $500,000. This means that you need to save up to around 5% of the property value for your deposit. This would equate to around $40,000 in this situation.
Even though the funds needed would be $40,000, you’ll most likely need between $44,000 and $46,000 as this will cover pests, building inspections and any other fees you’re likely to experience.
The bank also wants to see 5% held in a bank account for a minimum of 3 months. In this situation, it would be $25,000. They want to see that you have built this over a period of time and that it has not been gifted to you. There are alternatives here, as lenders will take into account your previous 12 months of rental payments as being genuine savings. If you are renting for around $485 a week, in this scenario, you would not have to show genuine savings, plus actual savings in your account. This is why a broker is important, because they think outside the box and they also have access to banks with many different policies. CBA, ANZ, NAB and St George are all prime examples of lenders who will give you favourable deals with no impact as to the interest rate. Let us help you find the most suitable solution and book a consultation today.
If you are not able to raise a deposit, then you can prove your eligibility in other ways. If you have been renting for a period of 12 months, then you can use this to show financial stability. In other words, if you are gifted $50,000 and you are renting, you have a good chance of being approved. The main reason for this is because you can show that you have come up with the rent money for your property over the space of a year, even though your deposit has been gifted. In other words, you are still proving your financial stability and security to the bank.
Not sure if your deposit will be sufficient to cover the cost of the home you intend to buy? We’ve put out a rough guideline for the minimum 5% deposit required for various property prices, which you can see below.
|Property Price||20% Deposit||12% Deposit||5% Deposit|
Advantages of a Low Deposit
If you are paying rent right now, then you may have heard that rent money is dead money. By putting down a lower deposit, you can lock your money in, and you can start making a good investment. The premium that you pay for your insurance will only be a one-off, so the advantage stems from your financial situation right now, and whether or not you’ll ever be able to raise a big deposit.
Are you a first home buyer? Please check our last article with a few tips for first home buyers to get onto the property ladder.
Get in touch for advice and guidance
Purchasing a property in Australia doesn’t have to be overwhelming. However, as previously said, that won’t come without considerable challenges, costs, and risks. If you’re wondering, “How much should I have for a house deposit?” explore your options with the experts at Capta Financial and book a consultation today. We’re here to help you every step of the way!
We are leading experts in the industry and it’s very easy to book a call through our online booking system. Contact us today! We are Mortgage Brokers based in Sydney and Gold Coast, but we are also able to assist clients all around Australia.