Are you looking to purchase your first home and have no idea what the minimum deposit is? We will explain how you can estimate the minimum deposit required to buy your first property and confirm if you are in a financial position to start looking for your first home.
Many people have been advised that the minimum deposit required to purchase a first home is 20%. This is not the case. At the time of this article, eligible applicants can buy a property and borrow up to 95% of the property value. This value must include all fees, including stamp duty, associated purchase costs and lender’s mortgage insurance.
As a first-home buyer, you will be eligible for stamp duty reductions depending on the value and location of the property. For this example, we will base our purchase in Victoria and use the victorian state revenue office stamp duty calculator to determine the stamp duty payable for this transaction, if any.
If we look at a purchase of $600,000 in Victoria, as a first home buyer, our stamp duty payable is reduced to $0.
Here is a breakdown of the transaction thus far;
As you can see, there are fees of $1,630, which consists of a transfer fee of $1,527 and a registration fee of $124. These fees are charged by government bodies and occur with all property purchase transactions. These fees do vary from state to state and depend on the purchase price, but generally fall somewhere between $1,000-$2,000.
Over the years, we have learnt that the minimum required deposit for a purchase is approx 8% of the purchase price. If our purchase price is $600,000, 8% equals $48,000. (600,000 *8% = 48,000)
Using a $48,000 deposit, the base loan equates to $553,630. Here is a breakdown of the transaction thus far;
With the deposit included of $48,000, our base lending to value ratio or LVR, is now 92.27%.
The final amount we need to calculate and include is the Lenders Mortgage Insurance. If you are unsure what Lenders’ Mortgage Insurance or LMI is, you can read the mortgage about it here.
On average, Lenders Mortgage Insurance equates to approx 2% of the base loan amount. If we use the base loan as above of $553,630, 2% equates to $11,072.60.
Including this amount in the overall transaction above, our total loan amount now equals $564,702.60. As you can also see, the overall lending to valuation ratio or LVR is now 94.12%.
If a lender offers 95% lending, this transaction would be acceptable for eligible applicants with only a deposit of $48K.
Please be advised, the figures outlined in this article are for instructional purposes and are only a guide to provide you with an estimate of the required deposit.
If you would like to discuss the above transaction further or are interested in running some other scenarios, we are certainly happy to discuss this with you. You can contact Chris Berry on 0477 212 840 or email Chris@findabetterrate.com.au from Find A Better Rate Home Loans, and he will be happy to have a non-obligation chat with you. Chris is based in Melbourne Victoria, but has clients all around Australia and can assist you wherever you are.
