First home buyers entering the property market would be wise to consider saving at least 10 percent of the purchase price, despite most lenders now requiring just 5 percent down payment.
Around two-thirds of home loans monitored by RateCity offer 95 percent loan-to-value ratios (LVRs) – or just 5 percent deposit – levels not seen since pre-GFC.
While this type of loan may seem attractive because a smaller deposit is required, there may be additional upfront costs involved in buying a home that you need to factor into your savings plan.
How much should you save?
When applying for a home loan most lenders set a maximum LVR, which determines how much you can borrow in relation to the price of the property. For instance, to be eligible for a home loan with an LVR of 95 percent, you’ll be required to put down a deposit of 5 percent.
There are other costs to consider too. Expenses such as stamp duty, lenders mortgage insurance and establishment fees are just some of the additional funds you will need to outlay before purchasing a home. And some of these fees may be more expensive if you have a smaller deposit.
For a first home buyer, RateCity estimates these costs can equate to $15,000 and around $20,000 for other buyers, depending on where and when you buy. Therefore first home buyers purchasing property valued at $300,000 would need to save at least $30,000.
How to get there, fast
The good news is that you may be able to reduce some of these additional costs, which means you won’t have to save as much if you follow some of these steps:
- Lower your property purchase budget. Some states across Australia offer exemptions or discounts on stamp duty depending on how much you want to borrow.
- First home buyers grant. First home buyers may be eligible to receive a grant depending on where you live.
- Setup a savings account. To help your money grow faster setup a high interest savings account with an automatic savings plan, so your funds are automatically deposited into the account regularly.