So, you’ve cracked open the piggy bank and while stacking coins and counting notes you’re wondering, “Gee, golly, just exactly how much deposit is needed for a first time homebuyer?”
This is the old “how long is a piece of string” idiom, but fortunately quite a bit easier to unravel — see what I did there?
First and foremost, we need to unpack what we’re talking about when we say the word deposit.
A deposit, in banking/lender terms, is the initial payment made towards the purchase price of a property.
The deposit doesn’t include the money or FTC (Funds To Complete) required for the additional expenses involved when purchasing a property. These are separate charges and need to be considered as such before making an offer on a property or before you bid at an auction. But more on those extras a bit later — let’s get back to this deposit business!
With the average cost of a house in Australia now at $930,000, you don’t have to be a finance whiz to know that’s a lot of cash you need just hanging around in a bank account for a 20% deposit. Fortunately, with lenders like Sucasa, you can now qualify for a loan with a mere 2% deposit.
While a percentage figure is all very well and good, what you’re after is an actual number that is tangible and real. Great news — you can arrive at this figure all by yourself and get the ball rolling.
First you need to know what price range you’ll be working within, and we can get you that firm figure swiftly without you even having to go to the gym!
We’ve covered how to calculate your borrowing capacity in a previous article, but if you missed it, let’s do a quick overview.
By subtracting your monthly expenses from your net monthly income and multiplying that answer by 125, you’ll get a number that gives you a very rough estimate of what your borrowing capacity might be.
If that’s still as clear as mud, then hop on over to our borrowing calculator to see this calculation in action, where you can custom fit it to your own figures.
Remember that what this calculation arrives at is just an estimate of how much you’re able to borrow. When you’re applying for your actual loan, the process carried out by your lender will be more thorough. Now you should have an amount to work with, so let’s look at that number and work out how much deposit is needed for first home buyers.
Most lenders require a cash contribution of 20% of the total purchase price of the property. So working from a borrowing capacity of say $520,000, let’s look at how much deposit you’ll need for a deposit as cash figures:
When buying your first place, not only are you dealing with the amount you’ll need in cash for your deposit, you’ll also need to have the FTC (Funds To Complete) on hand for a few other unavoidable expenses such as stamp duty, a conveyancer/property solicitor, building and pest inspections, LMI (if applicable), and any additional loan fees or government charges (like title registration).
With those basic calculations and extra financial considerations, that’s pretty much all you need to know in regards to how much deposit you need as a first home buyer. Now you just need to work on finding the difference between that amount and the money you just extracted from that piggy bank!
