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Undoubtedly, this golden question is one of the biggest dilemmas first home buyers face. It resembles one of the largest barriers to purchasing property, but essentially it is the key to the front door.
Real estate in Australia has certainly done its best to raise that hurdle, as figures from the Australian Bureau of Statistics (ABS) show that combined capital city values rose 9.8 per cent in the 12 months to June 2015.
It was a similar scenario in New Zealand, where the Real Estate Institute of New Zealand reported the national median price skyrocketed 10.7 per cent in the year to August 2015. Imagine the benefits people are receiving who have already got their foot in the door!
Never fear, though, because it's not too late. According to CoreLogic RP Data, along with spring, September 2015 saw the most new listings of homes for sale on the Australian market since March, with 26,829 put up for sale.This could help steady the growth in property prices, making accumulating enough deposit easier to achieve.
In light of this, how much deposit do you need to buy a home? Here is a brief rundown:
Who is the first home buyer?
The ABS asserts that on a monthly basis the value of Australian homes being purchased by owner occupiers is around $19billion - first home buyers make up for around 15 per cent or $3 billion of that.
While the national average home loan size is $364,400, home loans for first home buyers are generally around $340,000. Based on the current median prices in both New Zealand and Australia, this finance would give you access to property in the lower quartile of the markets. But hey, they don't call it the property ladder for nothing!
How much can I borrow?
According to the four major banks, they will consider your application once you have around five per cent of the purchase price. For example, let's say that first home buyer Fiona is looking at a home that is listed for $360,000. She would need to have at least $18,000 in savings to get a home loan of $342,000.
However, there are a number of further costs that you should consider before making any financial commitments, which the Australian Securities and Investments Commission (ASIC) affirms can include:
- Conveyancing costs
- Stamp duty - this differs from state to state, but as an example, it would be around $7,000 in Victoria for Fiona according to the State Revenue Office
- Building and pest inspections
- Insurance
Furthermore, lenders will analyse your savings history to ensure that it is regular over at least the three months prior to your application. An eyebrow may be raised if, for instance, first home buyer Fiona showed no evidence of saving until a lump sum (such as a gift or an inheritance) suddenly turned up in her account.
Bigger is better
The Australian Securities and Investments Commission recommends saving as much as you can, ideally around 20 per cent of the purchase price. This is because if you are borrowing more than 80 per cent of the home's value, typically you will be charged lenders mortgage insurance to cover the finance provider in case you default on your repayments.
In first home buyer Fiona's case, this would mean saving $72,000, which would result in a much more manageable $288,000 home loan. What's more, having a larger deposit will place you in a better position to negotiate more favourable rates. At the end of the day, the bigger your deposit the less interest you will pay!
You should schedule a visit with a mortgage broker if you would like to know more about your financial standing and to gain access to the best rates. Once you've been pre-approved, you are free to prowl through the property for sale on the market
What if you don't have enough of a deposit?
If you don't have enough savings, there are a number of things you can do. ASIC asserts that you can potentially use a guarantee from your parents (supported by a mortgage on their property, for instance) as equity to assist with your home purchase.
Alternatively, you could just spend some more time filling your piggy bank!
