Is a 20% deposit always necessary?

Is a 20% deposit for your first home always necessary to secure a home loan?

The average house price in Australia is now $679,100 according to recent data from ABS, with Sydney averaging over $1,000,000. With these statistics, a 20% deposit for most Australians feels out of reach, however, in 2015, the Reserve Bank said “The deposit required of a first-home buyer is no longer necessarily around 20 per cent of the purchase price, but rather, more often in the 5-10 per cent range.

5 – 10% means $33,955 to $67,910 on the average Australian home instead of $135,820 for a 20% deposit. What are your options for securing a home loan with a smaller deposit?

Pay LMI (Lenders Mortgage Insurance)

Lenders Mortgage Insurance is payable on loans when the value of the loan is more than 80% of the value of the property. LMI protects the lender in the event that you, the borrower, defaults on the loan. It is usually added directly to the home loan and you will pay interest on it over the course of the loan.

Have a Guarantor

A guarantor is someone (usually a parent) who signs the loan with you. The can be held responsible for the debt if you are unable to pay it. If you choose to do this, you can avoid LMI. All parties involved need to be aware of their financial responsibilities with this option.

Certain professions

Some professions such as doctors are eligible with certain lenders to get a home loan with a 10% deposit as their occupation is considered extremely secure. Chat with a broker to find out your options and if your profession is one that might be eligible.

10% Deposit and Good Credit

Some lenders will lend to you if you have a 10% deposit, great credit and job history.

When deciding whether to keep saving to get the 20% deposit or whether you should secure a home with a 5 to 10% deposit, you need to work out what the right option is for your circumstances.

Ashton De Silva, associate professor at RMIT University said homebuyers taking out larger loans should consider the benefits of getting into the housing market now, rather than waiting to hit a certain deposit.

“It’s not just a case of working out that you’ve got to pay another $50,000 in interest. What is the economic benefit of securing that place now?” he told The New Daily. “We expect people are making the decision that: ‘It is better for me to take on that extra cost and secure this dwelling.”

To find out if you can secure a home loan within a minimal deposit, chat to one of our brokers today.

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