How can I increase my deposit?
- Increase your deposit
- First Home Owners Grant
- Gift or Guarantor
- Deposit Bonds
- Good money habits
- Deposit Saver Accounts
One of the most important parts of getting a home loan is to have a deposit. The higher the deposit amount, the better lenders will review your application and your chance of loan acceptance improves.
There are different loans and loan terms for borrowers with different levels of deposits. The minimum deposit usually required is not less than 3-5%, with most lenders wanting 10-20% or more of the property value. If your deposit is less than 20%, most lenders will require Lenders Mortgage Insurance to be paid.
Paying a bigger deposit can help avoid financial hardship when rates rise or when your personal or lifestyle circumstances change. Remember also that there are a number of upfront costs associated with a property purchase that you need to allow for, including:
- Stamp duty (on the property and loan)
- Lenders' fees
- Legal fees
- Pest & Building Inspection costs
Depending on the price of the property, these additional fees can be an approximate 5% more on top of the property purchase price, and paying these fees up front is recommended. Depending on what your requirements are and what deposit you have, the actual loan can cover all or part of these additional costs, including the Lenders Mortgage Insurance if required.
It's best to enquire with your Time Finance mortgage broker to understand all of the costs involved, and what your actual loan amount or deposit needs to be.
Where to get the deposit from
There are some basic ways to obtain a deposit, as follows:
- Access funds in your savings account
- Any cash savings
- Access equity in your property
- Use the First Home Owners Grant
Most lenders require evidence of at least 3-12 months of 'genuine savings', but you can also obtain a deposit from the following other sources, which will be considered by lenders on a case by case basis:
These are amounts of money that friends or family are willing to give you toward your deposit.
Guarantors - family pledge, equity guarantee
Limited guarantor loans, also known as 'family pledge' loans or equity guarantee loans, allow an immediate family member to 'pledge' assistance to the borrower, either as a guarantor providing support through repayment assistance or as a guarantor providing additional security. Family pledge is typically a feature as distinct from a loan, and can be applied to most loan types once approved.
First Home Saver accounts
The federal government introduced the First Home Buyer Deposit Saver Scheme in 2008. The scheme, offered in addition to the First Home Owners' Grant and any state-based first home buyer grants and concessions, provides deposit saving support for first home buyers through special savings accounts called First Home Saver Accounts.
A Deposit Bond or Guarantee is a quick, convenient and cost effective alternative to a cash deposit if your finances are tied up in other investments, or if you are waiting to sell your existing property. If you're in the process of buying residential property, here's how you'll benefit:
- Convenient and cost effective alternative to a cash deposit
- Keep your other cash investments intact until settlement
- Enjoy fast turn-around
- Short term Deposit Guarantees are available for up to 6 months, and are useful when you don't have a deposit for a property won at auction
- Long term Deposit Guarantees are available from terms of 6 to 48 months and great when purchasing 'off the plan'
Note that not all sellers accept Deposit Guarantees. Speak to one of our loan consultants to find out more.
How do I increase my deposit?
The first thing to do is work out what your target deposit amount needs to be. Once you know this, you can set a goal or budget and a savings strategy to reach this.
- Know what you are earning and what you are spending (budget)
- Set yourself a living budget so that you can save more. Set up a savings account if you haven't already
- Maximise your interest growth by transferring a lump sum from your savings account into a better paying term deposit
- Save any additional money you come into - for example, if you receive a bonus, an inheritance, a gift, or a tax refund, try to save or invest this money, rather than spending it
- If you receive a pay rise, try to maintain your expenses at the same level so you can save the extra money, rather than spending it
- Seek additional work. This can be part-time or if you work as a contractor seek longer hours doing what you are doing. Ask your employer if there is some way they can give you extra work
Establish good money habits
- Take responsibility for your money - know your financial goals
- Start a budget - and stick to it
- Adopt good banking behaviours - bank efficiently
- Monitor your bank fees
- Keep records of all your transactions
- Check your account statement
- Pay attention to your financial situation
- Monitor your bills and payments
- Know what government benefits you may be entitled to
- Manage your debts - only borrow what you can afford to repay
- Set up savings strategies - save regularly
- Set aside some money in an emergency fund
- Understand your banking rights and responsibilities
- Protect your personal and financial information