How much deposit do I “actually need” to buy my first home?

The biggest question on First Home Buyers’ minds is ‘how much do I “actually need” to get into a home’?

First we need to understand the Three C’s of Credit: 

Capacity  Your ability to make the repayments, such as your salary 

Character How likely you are the repay the debt, such as your credit score 

Collateral What are we securing your loan against

Below, I am focusing only on collateral. How much deposit do you need, and how much collateral will a potential guarantor need to provide if you do not have enough? We are not considering government paid LMI schemes here as they can change and can often need a separate approval. We are simply looking at bank policy using the maximum LVR possible (98%). Some lenders only go to 97% and some 95% or less, but for the below exercise let's look at the maximum. 

Two Scenarios using the 98% maximum Lend Rule:

SCENARIO 1

$650,000 Purchase 

$    5,000 Costs (as there is no Stamp Duty, just legals and sundry purchase costs)

$655,000 Funds Needed to Complete before LMI

$617,500 Max Base Loan Amount 

$  24,000 LMI Payable by Borrower 

$679,000 Funds to Complete with Lenders Mortgage Insurance 

$637,000 Maximum Loan (with LMI capped) 

$  42,000 Minimum Cash Deposit Needed 

$  32,500 Amount of this deposit that must be “genuinely saved” (the remainder could be gifted)

SCENARIO 2:

$850,000 Purchase 

$  38,000 Costs (No Stamp Duty Concession)

$888,000 Funds to Complete before LMI

$807,000 Max Base Loan Amount 

$ 32,000 LMI

$920,000 Funds to Complete with LMI

$833,000 Max Loan Amount with LMI

$  87,000 Minimum Cash Deposit Needed

$  42,500 Amount of this deposit that must be “genuinely saved” 

Two Scenarios using the Parental Guarantee Option:

SCENARIO 1:

$650,000 Purchase Price 

$     5,000 Costs 

$655,000 Funds to Complete 

$655,000 Maximum Loan Amount Using Guarantee 

$168,000 Amount of Loan that needs to be secured against a parent’s or guarantors’ property 

$   0          Amount of Lenders Mortgage Insurance Payable 

$  0           Amount of funds needed to be saved

SCENARIO 2:

$850,000 Purchase Price 

$  38,000 Costs 

$888,000 Funds to Complete 

$888,000 Maximum Loan Amount Using Guarantee 

$260,000 Amount of Loan to be secured using the parents or guarantors’ property 

$    0          Amount of LMI Payable 

$    0          Amount of funds that need to be “genuinely saved”

 * Please note that we still need to show your ability to save or make payments, so the above is to be used as a guide only. 

* Also note that this is a guide only as different banks use different methods for working out their guarantee amount.

* The amount of guarantee reduces as funds you put in from your own savings increases.

I hope the above helps with some guidance of the deposit amount needed in the current climate. Please note that this is a very general guide only with approximate figures used. If you would like to reach out to the team to discuss your personal situation please email hello@spherehomeloans.com.au and book in a cost free chat with a Sphere Home Loans Broker today!