How Much Deposit Do I Need?
When buying a house, some lenders will accept a deposit for a loan of less than 5 percent, and some will require a 5 to 10 percent deposit for a home loan, depending upon the location and price of the property. However, sometimes a deposit of less than 20 percent may mean additional loan insurance is required. An example where the bank may not require a deposit for a home loan is where you have enough equity in another property.
Deposit When Purchasing a Property
Previously, a deposit of 20 percent of the price of the property was required by the real estate agent or vendor to show your intention to purchase a property. With the current real estate market, first home buyers don't have a large deposit so vendors are prepared to rest on a small deposit to start the property negotiations. If required ask us closer to the time of making an offer as to what deposit amount will be required and make sure you have it available at the time you make an offer on the day. Also within the finance clause on a Queensland Real Estate Contract, ask the real estate agent for 21 day finance clause, since majority of lenders only work Monday to Friday, 21 days for finance means 15 business days and a 14 day finance clause means 10 business days. Trying to obtain finance within 10 business days can be stressful on the purchaser if the lender's approval times have blown out i.e., due to their aggressive marketing campaigns, holiday seasons, etc... so we suggest obtaining a 21 days (15 business days) finance clause.
I Don't Want To Pay Lenders Mortgage Insurance
A few lenders do offer a facility up to 85 percent (85% LVR) with noLender Mortgage Insurance (LMI) payable. This means you only need a 15 percent deposit. The lender will pay the LMI premium to the mortgage insurer to establish the facility. If your loan is above $500,000 this could save you thousands of dollars and the LMI want need to be capitalised into the loan facility which adds additional interest repayments to the existing loan amount.
Establishing loan facilities with a 20 percent deposit require no LMI unless it is a Low Documentation Loan (LoDoc) as the LoDoc loan facilities above 60 percent incur an LMI premium at the clients cost or even the lenders cost.
Deposit When Purchasing an Investment Property
When buying investment property, many people will leverage on the equity in their home. This means that the lender may lend you 100 percent (or 110 percent) of the home loan amount, as it will utilise your home as security. However there are also a range of other home or investment loans on the market that do not require a deposit, but the interest rate for these products may be much higher than for regular loans.
An example of this type of available home loan is an Equity Finance Mortgage. The Equity Finance investor provides the 20% deposit and you are not required to make any regular repayment for up to 25 years. The investor will recoup the 20 percent originally borrowed plus up to 40 percent share of any increase in the value of the property when the property is sold.
Deposit for Off The Plan Purchase
When it comes to purchasing an investment property, if you don’t have spare cash lying around for a deposit – as some people don’t – you may be able to use a deposit bond. Deposit bonds are issued by insurance companies and provide a guarantee to the vendor that the deposit will be paid – usually at settlement time. The cost of a deposit bond is approximately two percent of the value of the deposit.
For example, you might be planning on buying an off the plan house for $300,000. A 10 percent deposit on this property would be $30,000, so the deposit bond would cost $600. If you need to get a deposit bond, let us know and will be able to assist you.
Not all vendors will accept a deposit bond so you will need to check with the real estate agent whether the vendor will accept a deposit bond.
Please Call our office, on 07 3315 0381 for your free credit advice.
