Calculate how much you need for a house deposit and upfront costs.
$162,600
*Estimates based on NSW rates. Specialist professions or First Home Schemes may waive LMI. Legal fees are estimated. Always consult your AFMS broker for an exact breakdown.
Speak to an ExpertBuying a home is a huge milestone that comes after all the hard work to save for a deposit, secure a home loan and search for the perfect place. As deposits are calculated as a % of the purchase price, it can be difficult to know up front how much you need to save for a house you can afford. When you also factor in that deposits below 20% will incur a lender’s mortgage insurance (LMI), calculating the right deposit amount for your financial situation takes careful planning.
With over 10 years in the financial industry, AFMS director Andrew Hadjidemetri has helped hundreds of Australians calculate their finances to secure their ideal home loan. We have compiled his expertise to help you calculate what level of deposit you might need to buy a home with a guide and calculator tool.
Generally, in Australia, lenders expect a minimum deposit of 20% of the purchase price of the property. Lenders may accept between 5% and 20%, depending on the lender, your financial situation and whether it’s your first home. A deposit amount is your contribution to the purchase price, so the more you can pay upfront, the less risk a lender sees in loaning you the remaining amount.
The ratio of borrowing is also known as a Loan to Value Ratio (LVR) and is calculated as follows:
(home loan amount/property value) x 100.
Example: (640,000/800,000) x 100 = 80%.
If a property is worth $800,000 and you borrow $640,000, your LVR is 80%, and your deposit is 20%.
A higher LVR (smaller deposit) usually means a higher risk for the lender and potentially a higher interest rate and LMI.
A lower LVR (higher deposit) usually means less risk for the lender, better interest rates and often no LMI.
Lenders prefer larger deposits as it indicates that you can manage your finances, and it reduces the size of the loan.
If your deposit is below 20% of the property value, you will usually have to pay lender’s mortgage insurance (LMI), which is an extra cost upfront or added to your home loan monthly repayments. This is an insurance that protects the lender if you are unable to pay back the loan.
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LMI is a sliding cost that can vary depending on the lender and their chosen insurer, your type of loan, the size of your loan and the value of your property. Usually, LMI costs range between 1-5%, and can sometimes reach up to 6.5%, of the home loan amount. This means that LMI could potentially range between a few thousand dollars and over $30,000, depending on how small the deposit is.
This is a ballpark range of how it could look based on a 5% LMI rate:
|
Property value |
20% deposit (no LMI) |
Home loan for 20% deposit |
Total cost (without LMI) |
5% deposit |
Home loan for 5% deposit |
LMI at 5% of home loan |
Total cost (with LMI) |
|
$500,000 |
$100,000 |
$400,000 |
$500,000 |
$25,000 |
$475,000 |
$23,750 |
$523,750 |
|
$600,000 |
$120,000 |
$480,000 |
$600,000 |
$30,000 |
$570,000 |
$28,500 |
$628,500 |
|
$800,000 |
$160,000 |
$640,000 |
$800,000 |
$40,000 |
$740,000 |
$37,000 |
$837,000 |
|
$1,000,000 |
$200,000 |
$800,000 |
$1,000,000 |
$50,000 |
$950,000 |
$47,500 |
$1,047,500 |
For a $500,000 home, the financially stronger route may be to save for a 20% deposit rather than add LMI on top of your home loan. With a 20% deposit, your savings go into the equity of the property, but with a 5% deposit, you do not benefit from the amount you have to spend on LMI.
However, the better option depends on how long it could take you reach this savings amount, as the property market may be increasing over this time. Sometimes, a 5% loan and spending on LMI may be more beneficial as your property value and income may increase while you own the home.
You can pay lenders’ mortgage insurance as a one-off upfront cost or add it to your monthly repayments, which then attracts interest.
A mortgage broker, such as AFMS, can help you model both scenarios to find the path that will benefit you the most. Knowing whether it’s worth buying sooner with a smaller deposit can help you finalise the savings plan you need for your future home.
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For certain individuals, there are options to reduce the amount you need to save upfront with a lower deposit and zero LMI. These are based on either Government Schemes designed to help Australians get on the property ladder or “professional packages” for certain professions that provide a lower lending risk.
First home buyers can buy a home with only a 5% deposit, and single parents or legal guardians can purchase a home with a minimum 2% deposit. The initiative, also known as the first home guarantee scheme, means that the Government guarantees up to 15-18% of the purchase price, therefore eliminating the need for lenders to add LMI.
There is an eligibility criterion to meet for the scheme, such as citizenship/residency, participating lenders and residential property requirements.
If you meet all the criteria, you could avoid lender’s mortgage insurance and secure a home loan with a smaller deposit. Check out our guide to the First Home Guarantee Scheme.
“Professional Packages” or LMI waivers can sometimes be offered to certain professions with job security and a stable, high income. These careers often mean the individual is seen as a low-risk borrower with a lower default rate and a high chance of being a returning customer. Therefore, the lender’s data-driven calculation allows them to reduce their deposit requirement in favour of a lower-risk loan.
Not all lenders offer these packages, but the most common are:
Not all lenders offer these incentives, and some will have eligibility criteria, such as minimum income, qualification certificates and minimum experience.
It’s always important to be fully aware of all the costs involved in buying your first home, especially when planning out your savings plan. These are some of the additional costs you may need to account for:
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Being aware of all the upfront costs and the deposit amount you need can be the motivation you need to save for your future home. With our savings goal calculator, we take the stress out of budget spreadsheets and make it easy to keep track of your end goal.
Get free, obligation-free advice from a top-rated Sydney mortgage broker.
Whether you’re just starting to save or already have a deposit, we’ll help you understand your options, LMI, and the best path forward.
What inspires me the most is the opportunity to help Australians achieve their financial goals through property ownership. Whether it’s guiding a first-time homebuyer through the process of purchasing their first home or assisting seasoned investors in expanding their portfolios, I find immense satisfaction in knowing that I’ve played a role in someone’s financial success.
Andrew Hadjidemetri,
AFMS Group Director (Accountants Daily Interview)