HOW MUCH DEPOSIT DO FIRST HOME BUYERS NEED

What is the Minimum First Home Buyer Deposit Need?

This perennial question for home hunters boils down to aiming for a deposit of at least 20% of the sale price as a general rule. The deposit amount typically aligns with the home's purchase value—higher property prices necessitate larger deposits. A higher deposit is advantageous because it reduces the principal loan amount on which interest is charged. It also demonstrates to banks and lenders that you have strong financial management skills and the capacity to service the loan, potentially leading to lower interest rates or more flexible loan terms, saving substantial money over the loan's lifespan. Certain lenders may require a specific deposit amount for loan applications or offer preferential terms to those meeting these criteria. Generally, investors are asked for larger deposits compared to owner-occupiers. Many lenders reserve their best interest rates for borrowers with deposits of 20% or more, though some may accept deposits as low as 5% under certain conditions or grants. These could involve having a guarantor for the loan, such as a family member agreeing to cover repayments if needed, or participating in government-backed home buyer schemes.

How Much Deposit is Required for First Home Buyers in Australia?

Buying your first home is a significant milestone, but it comes with its own set of challenges – one of the biggest being the deposit. In Australia, the required deposit can vary based on several factors, including the state or territory you're buying in. In this guide, we'll break down the deposit requirements for first home buyers in New South Wales, Victoria, and Queensland.

What is a Deposit?

A deposit is a portion of the property's purchase price that you pay upfront. It serves as a down payment and is usually expressed as a percentage of the total value of the property.

General Requirements

Typically, lenders in Australia require a deposit of at least 20% of the property price. However, there are some variations:

• Traditional Deposit: 20% of the property price.
• Low Deposit Options: Some lenders offer loans with deposits as low as 5%, but these often come with additional costs such as Lender's Mortgage Insurance (LMI).

New South Wales (NSW)

In NSW, the average property price can be quite high, especially in Sydney. Therefore, the deposit required can be substantial.

• Typical Deposit: 20% of the property price.
• First Home Buyer Assistance: The NSW government offers grants and stamp duty concessions that can help reduce the overall cost.

Victoria

Victoria, particularly Melbourne, also has high property prices, but there are several initiatives to assist first home buyers.

• Typical Deposit: 20% of the property price.
• First Home Owner Grant: Eligible first home buyers can receive a grant which can be used towards the deposit.

Queensland

Queensland generally has more affordable property prices compared to NSW and Victoria, making it slightly easier for first home buyers to save for a deposit.

• Typical Deposit: 20% of the property price.
• First Home Buyer Incentives: Queensland offers grants and transfer duty concessions for eligible first home buyers.

Low Deposit Options

If saving for a 20% deposit seems daunting, there are alternatives:

• Lender's Mortgage Insurance (LMI): If you have less than a 20% deposit, you may be required to pay LMI, which protects the lender if you default on the loan.
• First Home Loan Deposit Scheme: This government initiative allows eligible first home buyers to purchase a home with a deposit as low as 5% without needing to pay LMI.

Additional Costs of Property Purchase

Securing a home loan and purchasing property also incurs other expenses, including legal fees (conveyancing), stamp duty (transfer duty), inspection costs, home insurance, and upfront application charges from the lender. If you do not meet deposit requirements, you might need to pay Lenders Mortgage Insurance (LMI) to offset the risk for lenders accepting low-deposit home loan applications (usually under 20%). It's prudent to have extra funds on hand to cover all these associated costs in addition to your deposit, as well as for any unforeseen expenses.

Understanding Loan-to-Value Ratio (LVR)

The Loan-to-Value Ratio (LVR) is key metric lenders use, representing the loan amount relative to the property's value, expressed as a percentage. A lower LVR typically grants access to more favourable loan terms and lower interest rates, making it crucial to calculate and compare against your deposit when considering property purchases.

Assessment of Home Loan Applications

Every lender evaluates your financial circumstances before approving a home loan application. They consider factors like stable employment with sufficient income to cover repayments, reliable management of existing debts (including credit card limits), regular expenses, eligibility for government grants or schemes, deposit size, savings history (usually three to six months), credit history, and the source of your deposit.

Impact of Deposit Source

While lenders prefer deposits from personal savings to demonstrate financial responsibility, they may accept deposits from inheritances, government grants, asset sales, or gifts. Each lender's criteria vary, influencing the success of your home loan application.

Government Home Loan Schemes and Grants

Various government incentives assist first home buyers, including grants, guarantees, and savings initiatives tailored to income, property price, and location criteria. Examples include:

• First Home Owner Grant: Varies by state or territory, offering grants or stamp duty exemptions for eligible first-time buyers purchasing new or existing homes.
• First Home Super Saver Scheme: Provides tax benefits for voluntary superannuation contributions used towards buying property.
• First Home Guarantee: Formerly known as the First Home Buyer Deposit Scheme, allows eligible buyers to secure loans with deposits as low as 5% without paying LMI.
• Family Home Guarantee: Offers a government guarantee for single parents, allowing deposits as low as 2% without LMI.

Check your state or territory's relevant sources for specific eligibility details and benefits available where you reside.

Minimum Deposit for First Home Buyers in Australia

In Australia, the minimum deposit required for first home buyers can vary based on different factors, including government support, location, and individual financial circumstances. Government Support and Schemes:

• The Australian Government has initiated the Home Guarantee Scheme, which allows first-time home buyers to fast-track their home ownership dreams with one of three guarantee options. This scheme enables eligible first-time buyers to potentially purchase a property with as little as a 5% deposit without having to take out Lenders Mortgage Insurance
• The First Home Owner Grant varies from states and territories, offering a one-off payment to first-time home buyers. The amount, criteria, and details for the grant vary, so it's important to check with the lender or visit the Federal Government's First Home Owner Grant site for more information
• The First Home Super Saver Scheme (FHSSS) allows first home buyers to save a deposit through their super, with the option to withdraw a maximum of $15,000 of voluntary super contributions from any one financial year to buy their first home

Financial Considerations:

• The average first-home buyer in Australia has a deposit of $159,000, according to data from 2023, which represents a 20% deposit. This amount is considerably higher than the average home loan in Australia for first-home buyers
• The latest analysis by comparison site Finder found that the national average first home buyer deposit was $106,743, with variations across different states

Location and Property Types:

• The minimum deposit required for the First Home Guarantee is 5%, but participating lenders may require a higher percentage deposit based on individual financial circumstances. Additionally, property types and price caps may also influence the deposit requirements
• In some states, such as Victoria and South Australia, the First Home Owner Grant varies based on whether the buyer is purchasing in metro areas or regional areas, with different grant amounts for each

Additional Considerations:

• Features such as Lenders Mortgage Insurance (LMI) and family guarantees can enable some lenders to accept a much smaller deposit than the traditional 20%
• The average time it takes for the average buyer to save enough to buy a house in Australia is 4.9 years, and 3.5 years to save enough to buy a unit, based on the average income for a couple aged between 25 and 34 years old in each capital city