Normally, most lenders – including the big four banks in Australia – will accept at least a five percent deposit of the property’s value if a buyer pays lender’s mortgage insurance or LMI and has a good standing during application. Good credit score, stable income and strong employment history.
A first time home buyer can avoid LMI if they submit their application through the Home Guarantee Scheme with a lender/bank or with the help of a guarantor.
They would only need to deposit at least $30,000 to buy a $600,000 home and borrow $570,000 from a lender or bank. Their house deposit covers five percent of the total price of the property the client wants to buy, then the home loan covers the rest of the amount.
A five percent deposit would give a buyer a home loan with a loan-to-value ratio of ninety five percent also known as a low-deposit home loan. Some lenders may require a minimum of ten percent deposit with LMI.
The deposit for first time home buyers is at least twenty percent of the property’s value to avoid LMI or put another way a maximum LVR of eighty percent. Most lenders take into consideration loans with an LVR more than eighty percent of the property value to be a higher risk.
There are alternative ways to buy a home such as rent to own homes which require a smaller deposit for first time home buyers, but this can literally end up being a more costly choice in the long run due to fees charged.
Other advanced charges to look at
Buying a house is not just about the total price of the house – there are some other advanced charges a first time home buyer needs to know about.
- Stamp duty
This is a state and territory government tax that can change depending on these factors: location, whether it’s a first home or an investment and the value of the property. It’s necessary that a buyer will take this into consideration when planning to buy a house – our Stamp Duty calculator can help give you an idea of how much this may be. - Legal costs
Several legal processes are involved when buying a house. Conveyancing might include a property and title search, the review and exchange of the contract of sale, the transfer of the title and other factors as well. - Mortgage establishment and registration fees
This actually depends on the state in which the buyer lives and who the lender is. Knowing whether these are a requirement for a buyer is also necessary.
Alternative Sources of Deposits for First Time Home Buyer in Australia
It’s really hard to save a large amount of money just to buy a dream house. It’s not just about saving up for just the house but also saving enough to cover the fees associated in the home buying process. The good thing is, there are some alternatives available that might help increase your savings or even reduce the cost of fees. Here are some alternative ways and options that might help make it easier for first time home buyers earn their dream home.
- First Home Owner Grant
This is a one time grant payment given to any first home buyer who meets the qualification criteria. The amount paid differs between different states, but in South Australia a first home buyer who gets into a contract with a licensed contractor to construct a new home or buy any house never have occupied yet may be qualified. A first time home buyer can use the funds from their grant to help offset the charges involved in buying their dream property. - Stamp duty exemption
There’s also the difference in how stamp duty is computed on various types of property to consider. For example, if a first time home buyer purchases an established home the stamp duty amount is computed on the full selling price. If a first time buyer purchases a house and lot, they will only pay stamp duty on the land of the package value. - Family Guarantee
This allows the parents to utilise some of the equity in their property as collateral or security for their children’s loan. Lenders and banks allow the first home buyer to borrow the amount of money they need to purchase a house. But, as the bank has security over some of the parents’ equity, the first home buyer may have a chance to avoid paying Lenders Mortgage Insurance. - Use the super to boost deposit
This is designed to help first home buyers save for the deposit. The factor behind the savings initiative is to allow first time buyers to potentially withdraw up to thirty thousand dollars from their superannuation savings to add towards their deposit. After the agreed date on the First Home Super Saver Scheme application, first time buyers may be able to withdraw those additional funds to put towards their home deposit. The catch is, they can’t withdraw any cash from the balance they already have in their super fund today. They will need to secure a First Home Super Saver account with their super fund so those funds are kept detached. This was set up to give first time home buyers the opportunity to contribute additional amounts of money into a different savings account. Their voluntary contributions are those they make over and above the amount paid by their employer. They can choose to make voluntary concessional or non-concessional contributions. Some employers may offer salary-sacrifice choices that could help them for the before tax contributions. There is a second catch. The extra contributions They had paid into their Super Saver Scheme are counted towards their concessional or non-concessional contribution tax. This means they will pay tax on the amount of money they withdraw from the fund at their current marginal rate with a thirty percent tax rate.
Ready to move in on your first house?
Australian Financial and Mortgage Solutions makes sure that every client will have personalised guidance especially about saving up a deposit for first time home buyers. That’s why we’re committed to helping you secure the best home mortgage options in Sydney depending on your specific needs and financial goals.
Contact Australian Financial and Mortgage Solutions today to start your journey with ease. Let us help you in achieving your dream home.
