How much deposit do I need to buy a home?
One of the biggest challenges of property ownership in Australia is saving up the deposit required.
In general, lenders require you to make a down payment of at least 20% of the purchase price of the property. This means that if you are looking to buy a house for $400,000, you would need to save up at least $80,000 for a down payment.
However, there are some cases that may allow you to buy a house with a smaller deposit - and you can learn more about those in our guide on 5% deposit home loans.
What are the factors that impact how much deposit you need to buy a home?
Some of the key factors that can affect how much deposit you need to buy a home include:
- Type of property: The type of property you are looking to purchase can affect how much deposit you need to buy a house. For example, lenders may require a higher deposit for an investment property or a property in a remote location, as these properties may be seen as higher risk.
- Loan-to-value ratio: The loan-to-value (LTV) ratio is the amount of the loan divided by the value of the property. Lenders may require a higher deposit if the LTV ratio is higher, as this indicates a higher risk of default.
- First home buyers: If you are a first home buyer, you may be eligible for certain government programs and incentives that can help you buy a house with a smaller deposit. For example, the First Home Loan Deposit Scheme allows eligible first home buyers to purchase a property with a deposit as low as 5% without paying mortgage insurance.
- Other factors: Other factors that may affect how much deposit you need to buy a house in Australia include your credit score, income, and debt-to-income ratio. Lenders may require a higher deposit if you have a lower credit score, a lower income, or a higher debt-to-income ratio.
Understanding the Importance of Saving for a Home Deposit?
Saving for a home loan deposit is important because it can help you secure a mortgage and become a homeowner. Having a deposit saved up can also give you more bargaining power when negotiating the purchase price of a property. Plus, it can help you avoid having to pay lender's mortgage insurance, which can sometimes be quite expensive and is an additional cost you might have to pay.
- Why a home deposit is crucial?
A home loan deposit is a crucial part of the home buying process because it shows lenders that the borrower is financially stable and capable of taking on a mortgage. By putting down a deposit, you are able to demonstrate your commitment to the home purchase and ability to save money. This can help you secure a better interest rate on your mortgage, which could possibly save you thousands of dollars over the life of your home loan. - What are the benefits of owning a home?
There are several benefits to owning a home, including; the opportunity to build equity, the ability to customize and improve the property, and the potential for financial stability and security. Owning a home can also provide a sense of pride and accomplishment, and can be a good investment for the future. - What are the costs of not having a home deposit?
Not having a home deposit can make it difficult to qualify for a mortgage, which can limit your options and make it harder to find a home that meets your needs and budget. Additionally, not having a deposit can result in a higher interest rate on the mortgage, which can increase the monthly payment and the overall cost of the loan. Finally, not having a deposit can make it difficult to afford the other costs associated with buying a home, such as closing costs and moving expenses.
Determining how much you need to save:?
To determine how much you need to save for a home loan deposit in Australia, consider the minimum deposit required by the lender and loan product you're interested in. Also consider the property's purchase price and any additional fees. Use the formula (see below) to get a good idea of how much you may need.
The below graph shows you how much deposit you may need based on low, medium and high property prices.
- The average cost of a home in Australia
Data from Joust suggests the average cost of a home in Australia is $541,217.
Source: Joust Live Auction data over the last 12 months (Australia wide). - Calculating the minimum deposit requirement
When it comes to buying a home, one of the first things you need to consider is how much money you'll need for a deposit. The minimum deposit requirement will vary depending on the lender, the type of loan, and your individual circumstances, but generally speaking, most lenders will require a deposit of at least 5% of the purchase price.
To calculate your minimum deposit requirement, you'll need to first determine the purchase price of the home you're interested in. You can do this by looking at comparable properties in the area or by getting a property valuation from a professional. Once you have the purchase price, multiply it by 5% to determine the minimum deposit you'll need. For example, if the purchase price of the home is $500,000, your minimum deposit requirement would be $25,000.
Formula: Minimum deposit = Purchase price x Minimum deposit percentage
For example, if the purchase price of the property is $500,000 and the minimum deposit percentage is 5%, the minimum deposit would be calculated as follows: Minimum deposit = $500,000 x 0.05 = $25,000
Important note: The above is just an example, and the actual minimum deposit requirement may vary depending on the lender and the specific loan product.
- The impact of interest rates on your savings goal.
Interest rates play a crucial role in the home buying process, as they can affect both your deposit savings goal and the overall cost of your mortgage. When interest rates are low, it can be easier to save for a deposit and to secure a lower interest rate on your mortgage. However, when interest rates are high, it can be more difficult to save for a deposit and your monthly mortgage payments may be higher.
It's important to keep an eye on interest rates and to consider their impact on your savings goal. If interest rates are low, you may be able to save more quickly and afford a larger deposit. If interest rates are high, you may need to adjust your savings goal and budget accordingly.
Home loan deposit calculator:
Joust provides a wide range of home loan deposit calculators you can use.
The Borrowing power calculator can help you determine how much you can borrow based on your current financial position.
The mortgage payment calculator can provide you with an estimate of your regular loan repayments and total interest payable.
You can view all our different calculators here.
Tips for reducing expenses to build your deposit
By reducing your expenses and cutting back on unnecessary spending, you can free up more money to put towards your savings and reach your deposit goal faster. Here are few simple some tips for reducing expenses and saving for your deposit:
Create a budget and track your spending: The first step to reducing your expenses is to understand where your money is going. Create a budget that outlines your income and all of your regular expenses, and track your spending to see where you can cut back.
Cut back on unnecessary expenses: Take a close look at your spending and identify areas where you can reduce your expenses. This might include cutting back on dining out or uber eats deliveries, canceling subscriptions you don't use, or reducing your entertainment budget.
Negotiate lower rates on bills and services: Another way to reduce your expenses is to negotiate lower rates on things like your mobile phone plan, car insurance, and other bills. You may be surprised at how much you can save by simply asking for a better rate.
Look for ways to save on groceries and other essentials: Groceries and other household essentials can add up quickly, but there are ways to save on these costs. For example, you can try buying generic brands, shopping at discount stores, and using coupons. You can also save money by meal planning and cooking at home, rather than eating out.
Case Study:
Jane is a 25-year-old marketing professional who is saving for a deposit on a house. She earns $50,000 per year and has a monthly after-tax income of $3,125. To save for a deposit, she decides to follow the 50/30/20 budgeting rule and allocate 50% of her income towards necessities, 30% towards discretionary spending, and 20% towards savings.
After creating a budget and tracking her spending, Jane realizes that she is spending more than 30% of her income on discretionary expenses, such as dining out and entertainment. To reduce her expenses and save more money for a deposit, she decides to cut back on these expenses and redirect the extra money towards savings.
Over the next few months, Jane is able to save an additional $500 per month by reducing her discretionary spending and putting the extra money towards her savings. By following the 50/30/20 budgeting rule and reducing her expenses, she is able to save $6,000 in six months, bringing her closer to her goal of saving for a deposit on a house.
Be like Jane.
Ideas for increasing income to save for deposit
- Part-time job or freelance gig: One way to increase your income is to take on a part-time job or freelance gig in addition to your regular job. This could be anything from working as a server at a restaurant on the weekends to doing freelance writing or web design on the side. By earning extra money in your free time, you can boost your income and save more money for your deposit.
- Sell your unused items: Another way to increase your income is to sell your unused items, such as clothing, electronics, and household items. You can sell these items online through websites like eBay, Facebook Marketplace or Gumtree, or you can have a garage sale and sell them locally. By decluttering your home and turning your unused items into cash, you can increase your income and put more money towards your savings.
- Save on rent: Rent can be one of your biggest outlays, so it’s worth asking yourself — would an extra 15-minute commute be bearable if it boosted your deposit savings? For example, if you’re currently paying $550 per week on rent and you found a place in a suburb that was about 20 minutes further out that cost $350, that $200 savings per week would work out at a whopping $9,600 per year.
Explore Government Programs and Incentives?
Although property prices tend to keep rising, Australians are fortunate enough to have several home loan schemes offered by the government. As of December 2022, these include The First Home Loan Deposit Scheme, The First Home Super Saver Scheme and government grants.
Consider alternative funding options to get your home loan deposit?
If you are struggling to save for your deposit or have lost hope in buying property in Australia, there are still other options available. One option you might consider is borrowing from family.
This can be a good way to get the money you need without taking out a traditional loan from a bank or other lender.
According to the Australian Bureau of Statistics, the average deposit for a house in Australia is around $50,0001. This can be a significant amount of money for many people, especially if you're a first-time buyer. Borrowing from your family can be a way to access the funds you need without incurring the high interest rates and fees that come with a traditional loan.
Here are some things to consider if you're thinking about borrowing from friends or family to buy a house in Australia:
- Make sure you have a written agreement in place: This will protect both you and the person you're borrowing from in case there are any misunderstandings or disagreements down the road.
- Consider offering collateral: If you have assets like stocks, bonds, or even a car, you could offer them as collateral to secure the loan. This will give the person you're borrowing from added assurance that they will get their money back.
- Be prepared to pay interest. Even though you're borrowing from friends or family, it's important to remember that this is still a loan. It's a good idea to agree on a fair interest rate upfront, and to make regular payments to the person you're borrowing from.
- Don't forget to factor in the cost of the loan in your overall budget. Borrowing from friends or family can be a good option, but you still need to make sure you can afford the monthly payments.
- Consider other options. Borrowing from friends or family isn't the only way to get the money you need for a deposit. You could also look into government programs, such as the First Home Owners Grant, or consider other financing options, such as a low-interest loan from a bank.
Case Study:
Samantha is a first-time home buyer in Australia. She has been saving up for a deposit, but she still needs an additional $20,000 to reach her goal. After talking to her parents, she is able to borrow the money she needs to meet the needs of her minimum deposit. They agree on a 5% interest rate, and Samantha agrees to pay back the loan over a period of 5 years.
Thanks to the loan from her parents, Samantha is able to make a larger down payment on her house, which saves her money in the long run. She also avoids the high interest rates and fees that come with a traditional loan. By borrowing from friends or family, Samantha was able to get the money she needed to buy her dream home in Australia.
You have your deposit, now get the home loan interest rate you deserve
So you have your deposit, or at least you are on the way to it, now is a good time to see what competitive home loan offers are available to you. Use Joust Instant Match to see what competitive home loan rates you could get matched to based on your unique individual circumstances.
Joust Instant Match is free to use, has no obligations and only takes a few short minutes to get instantly matched to competitive home loan deals. Try Joust Instant Match today.
*The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Joust recommends that you consider whether it is appropriate for your circumstances. Joust recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.
1. Australian Bureau of Statistics
