To save for a house deposit in Australia, aim for at least 20% of the property's purchase price to avoid lenders' mortgage insurance (LMI), though some lenders may accept as low as 5% with LMI added. The exact amount depends on factors like property location, type, and eligibility for first-home buyer schemes, which can reduce the required deposit. Additionally, account for extra costs such as stamp duty and legal fees when setting your savings goal.
Saving for a house deposit is one of the most significant financial goals many Australians face. With property prices in major cities continuing to rise, understanding how much you need to save is crucial to getting a foot on the property ladder. A house deposit is typically a substantial sum, and knowing the requirements and how to calculate your target can make the process more manageable and less daunting.
In this article, we'll explore the standard deposit requirements in Australia, the factors that influence how much you need to save, and tips for reaching your savings goal faster. By understanding these key elements, you can create a realistic plan that aligns with your financial situation and helps you achieve your homeownership dreams.
How Much are House Deposits in Australia?
In Australia, the standard house deposit is typically 20% of the property's purchase price. This amount is generally required by lenders to avoid paying lenders’ mortgage insurance (LMI), which is an additional cost that protects the lender if the borrower defaults on the loan. For instance, if you're looking to buy a property priced at $600,000, a 20% deposit would be $120,000.
Some lenders may accept a smaller deposit, as low as 5%, but this usually means you'll need to pay LMI, which can add thousands of dollars to the cost of your home loan. However, if you work in specific professions, for example you're a doctor, lawyer, teacher, veterinarian or accountant, you may be eligible to borrow up to 95% with no LMI required! On a $600,000 property, a 5% deposit is only $30,000, and you don't need to pay thousands of dollars for lenders mortgage insurance. To see if you are eligible for the LMI waiver, see our article on the professions that are eligible. Additionally, if you are a first home buyer, you could also be eligible for the 'First Home Guarantee' which allows you to buy a home with 5% deposit and no LMI.
When we talk about the actual deposit amount (rather than the percentage), this will vary depending on the type and location of the property. Properties in major cities like Sydney and Melbourne tend to have higher prices, which means a higher deposit in absolute terms. Conversely, properties in regional areas will require a smaller deposit due to lower property prices. Additionally, different types of properties, such as apartments vs houses, may have varying deposit requirements, with houses generally requiring larger deposits. Understanding these factors is essential to accurately estimate how much you need to save.
Other Fees to Account For
Besides the house deposit, it is important to remember that there are government fees and other costs that you need to factor in. For example, you will need to purchase pest, building or strata reports, pay stamp duty (unless you are exempt as a first home buyer), solicitor or conveyancing fees, mortgage registration fees, loan application fees, and registration of title fees.
The largest of these fees will be the stamp duty, so it is a good idea to work out how much this will be. The amount depends on your property purchase price, as well as the state you live in. Check out our Stamp Duty Calculator to estimate this fee.
Calculating How Much You Need to Save
Calculating how much you need to save for a house deposit involves several steps. First, determine the approximate price of the property you want to buy. For example, if you're aiming for a home that costs $600,000, and you want to avoid LMI, you'll need to save a 20% deposit, which would be $120,000. However, if you qualify for a first-home buyer scheme and opt for a 5% deposit, you'd only need to save $30,000. This difference highlights the importance of understanding the various options available to you.
In addition to the deposit, there are other costs associated with purchasing a property that should be factored into your savings goal, as mentioned above. These include stamp duty, legal fees, building and pest inspections, and moving costs. Stamp duty alone will add thousands of dollars to the total amount needed, depending on the property's value and location. By calculating these additional expenses upfront, you can avoid surprises and ensure that you have enough funds to cover all the costs associated with buying a home.
Tips for Saving Your Deposit Faster
Saving for a house deposit can seem like a daunting task, but there are strategies you can use to reach your goal faster. One of the most effective methods is creating a detailed budget and sticking to it. This involves tracking your income and expenses, identifying areas where you can cut back, and allocating a specific amount of your income to your savings each month. Setting up a separate high-interest savings account for your deposit can also help your savings grow faster, thanks to the power of compound interest.
In addition to budgeting, making lifestyle adjustments can significantly boost your savings. This might involve cutting down on discretionary spending, such as dining out or entertainment, and redirecting those funds into your savings account. Additionally, exploring additional income sources, such as taking on a part-time job, freelancing, or investing in low-risk opportunities, can provide extra funds to accelerate your savings. By combining these strategies, you can make steady progress toward your deposit goal and bring homeownership within reach sooner than you might expect.
Conclusion
Saving for a house deposit in Australia requires careful planning and discipline. By understanding the factors that influence deposit requirements and adopting strategies to save effectively, you can achieve your goal of homeownership. Start early, budget wisely, and consider all costs involved to ensure you're well-prepared for this significant financial commitment.
Speak to an Expert Mortgage Broker
If you have more questions about buying property, speak to a top mortgage broker, 100% free of charge. Whether you want to check if you can buy property with only 5% deposit, or if you are eligible for LMI waiver, our experienced team will answer all your questions. Fill out the form below or give us a call on (02) 9188 9398.