Generally, banks and financial institutions will recommend you have a deposit of at least 20% of your prospective property's purchase price. So, if we go back to our $400,000 home, you'd want to provide $80,000.
While a $10,000 deposit is low, you can still buy a home with this low deposit depending on your lender. Some lenders allow low deposit loans as long as you pay a one-time fee. The fee is security and shows the lending company that you are responsible and serious about owning a home.
Your house deposit will generally need to 20% of the purchase price, if you want to avoid paying Lenders' Mortgage Insurance.
Many banks and non-bank lenders are willing to lend up to 95% of the property purchase price. Essentially, this means you'll need to save at least 5% of the purchase price to put towards your deposit. So, if you're buying a home valued at $400,000 then 5% of the purchase price is $20,000.
“But if you're willing to be open-minded about your loan-to-value ratio and location, you can definitely buy a good investment property with a $100,000 deposit.”
Deposit savings
Ideally, you should save as much as possible before buying a home. The minimum required deposit is 10%, but aim for 20% if possible. If you're borrowing more than 80%1 of the property value, you'll need to take out Lenders' Mortgage Insurance or Low Deposit Premium.
How much can you afford to save? – Data from the Federal Reserve shows that the average American saves only 6% of his or her disposable income. Assuming he or she earns the median household income, 6% would be roughly $300 per month, enough to buy a $100,000 home by 35 if he or she started saving at 28.
This means if you're looking to buy a house with a value of $800,000, you'll need a deposit somewhere between $40,000 and $80,000.
Home deposit size
If you've been able to save a large deposit to buy a home, a lender will likely lend you more. However, lenders will generally not let you borrow more than 90% of a property's value. For example, if a property costs $500,000 and you have a $50,000 the deposit, the lender will only lend you $450,000.
Owner-occupier home loan deposits
Simply put, that means if you were looking to buy a property for $500,000 you would need a deposit of $100,000.
In total, you will need 8-10% of the purchase price in savings to afford a home. So for example, if you were buying a place for $400,000 you would need around 10% or $40,000 in savings. This includes the bank (sometimes called the home loan deposit) and other costs like stamp duty.
You'll need to save up to 5% or more of the purchase price as a deposit, and borrow the rest of the money (the mortgage) from a lender such as a bank or building society. The loan is 'secured' against the value of your home until it's paid off.
Understand Lenders Mortgage Insurance (LMI)
In most locations worth investing in, a $30,000 deposit won't get you to that 80% Loan to Value Ratio (LVR) sweet-spot. That doesn't mean that you can't buy a property, but you may incur LMI fees.
From 1 July 2022, you will be able to contribute, and access for your first home, up to $50,000 in total voluntary contributions made under the FHSSS. These contributions must be within existing contribution caps (e.g. the $27,500 per year concessional contributions cap).
Most lenders are looking for 20% down payments. That's $60,000 on a $300,000 home. With 20% down, you'll have a better chance of getting approved for a loan. And you'll earn a better mortgage rate.
On an annual income of $80,000 after-tax, a lender may offer you a mortgage of $1.75 million. This assumes that the applicant's credit score is at least average. It also assumes that there are no outstanding debts owed. The applicant's expenses are also zero.
Generally speaking, if you want to avoid mortgage stress you should be spending less than 30% of your pre-tax income on your home loan repayments. If you're on a high income you may be able to afford to borrow more but 30% is one of the most commonly used benchmarks.
It's possible to borrow five times my salary for well-qualified homebuyers. To understand the amount any mortgage applicant may borrow, we explore borrowing capacity and an example. The borrowing capacity calculator takes into account an applicant's income and expenses.
The First Home Super Saver scheme allows you to make voluntary contributions to your super to help save a deposit for your first home. You can withdraw this amount, plus investment earnings when you are ready to buy a home.
Usually, 20% of the full value of the house is a good amount to aim for as a deposit. You can still get a loan if you have a smaller deposit, but you may need to take out Lenders Mortgage Insurance (LMI) which adds an additional cost to your loan. It'll also take longer to pay off.
What income is required for a 600k mortgage? To afford a house that costs $600,000 with a 20 percent down payment (equal to $120,000), you will need to earn just under $90,000 per year before tax. The monthly mortgage payment would be approximately $2,089 in this scenario. (This is an estimated example.)
By age 30, you should have saved close to $47,000, assuming you're earning a relatively average salary. This target number is based on the rule of thumb you should aim to have about one year's salary saved by the time you're entering your fourth decade.
On average, it takes 4 ½ months to shop for a home, plus an additional 30-45 days to close on a home once you are under contract. But of course, the timeline can vary widely based on factors like the time of year, your financing needs, the type of home you're looking for, and the inventory in your local market.