Calculating How Much You Have To Put Down On A House

For many people owning their own home is the ultimate dream, that’s despite the fact that nearly two-thirds of Australians think homeownership won’t be an option for young people.

The simple truth is that property prices in Australia have been rising steadily for many years and they are rising at a faster rate than wages. Many people will inevitably be unable to purchase a property.

But, whether you are looking at where to buy investment property or you just want a space to call your own, you’re going to need to know how much you have to put down.

The Average

A simple average is 20%. That means if you are purchasing a property for $250,000 you will need a $50,000 deposit.

You can instantly see how this could be difficult for many purchasers.

Lowering The Rate

The good news is that this isn’t a statutory limit. If you shop around the various lenders you will find some that ask for a little less. Remember, 15% on the same property may not sound a lot different but it represents a saving of $12,500. That’s a quarter of the 20% deposit amount.

Alongside lenders offering different rates, you will also find there is a scheme known as Lenders Mortgage Insurance (LMI). In effect, this is an insurance policy that will pay the mortgage company the difference between your deposit and the standard 20% deposit.

Using this scheme it is possible to bring the deposit amount down to 5%. That’s just $12,500 on a $250,000 house.

However, there is a catch. You will need to pay the LMI monthly to ensure the insurance is available if needed.

The exact amount will be worked out by the LMI. However, if you were buying a property worth $250,000 with a 5% deposit it is likely you would need to pay approximately $2,300 to cover the cost of the LMI. In most cases, this will need to be paid upfront and you’ll need to factor this into your deposit equation.

In other words, if you are buying a property worth $250,000 with a 5% deposit you’ll need approximately $15,000 to cover the deposit and the LMI.

In addition, you may need to have enough to cover the legal fees and surveys completed during the purchase.

Getting A Deposit Together

You can get exact values from your broker once you have decided you are ready and how much you want to borrow/will be offered. Many young people are living with their parents into their late twenties and thirties to help them raise the money they need for a deposit.

If you have any debts you should clear these first, this will help you to save, and having cleared the debts you will be able to borrow more for your house.

You can also reduce outgoings, keep an eye on any first home loan schemes, and even take on an additional job to help you save the necessary funds.

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