Home Loan deposit

Posted on: 11.08.2016

Basic terms and definitions surrounding a home loan deposit

LVR – Loan to Value Ratio – This is the loan amount your applying for compared to the value of the property. For example – on a purchase price of $300,000, if your loan amount was $240,000. You would be at an LVR of 80% (therefore meaning you have a deposit of $60,000).

important note – remember to budget for the additional costs of purchasing when saving for your deposit as well. (conveyancing, stamp duty, pest and building inspections, possible maintenance etc.)

LMI – Lenders Mortgage Insurance – As a general rule, if you have under 20% of the purchase price for your home loan deposit. You’re more than likely going to have to pay LMI. In short, this is an insurance fee that you have to pay which covers the bank if you default on your mortgage. It’s calculated based on the size of your deposit, the smaller the deposit, the higher the LMI fee.

How much of a home loan deposit is enough?

It all comes down to timing and how urgent you are to purchase a home. If you need to purchase as soon as possible, 5% is the minimum deposit required to proceed with most lenders (on a $300,000 purchase price, that’s a $15,000 deposit).

However, if possible, it is definitely better to try and save up a 20% deposit. (on a $300,000 purchase price, that’s a $60,000 deposit). By saving a 20% deposit you should then be avoiding the additional cost of LMI (Lenders Mortgage Insurance).

Summary

As a general rule-

If your in a hurry to purchase – 5% is the minimum deposit required.

If you can wait and save (our preferred option) – 20% deposit will save you having to pay LMI.

Saving a home loan deposit can be hard with all the other costs of living, for additional tips on saving please check out some of our other blogs like ‘basics of saving’ or ‘saving money made easy’. Alternatively, we would love the opportunity to contact you for a free, no obligation chat to try and get you on a quicker path to purchasing your dream home.

Best of luck,

The Uprosper Team