How much do I need to save for a home deposit?

How much do you need to save in order to fund a deposit for home and get approved for a mortgage?

Buying a home is a huge investment and there are plenty of up-front costs in addition to the cost of a deposit on the property price itself, including:

  • Lender’s Mortgage Insurance,
  • Pest and Building inspections,
  • loan application fees,
  • conveyancing / solicitors fees,
  • government stamp duty,
  • home and contents insurance and
  • moving in expenses.

The biggest expense is the deposit you will need to accumulate to get in the door of the property market. There are very few loan products in Australia offering finance on a home without a deposit.

How much do I need for a home deposit?

Home prices in Australian capital cities have fallen in the last two years, bringing the amount needed for a deposit down as well.

According to Westpac’s borrower guidance information, a home worth $600,000 requires a deposit of $120,000 for a mortgage without insurance. The minimum 5 per cent deposit for a $600,000 home equals $30,000. A home worth $500,000 requires a deposit of $100,000 for no insurance a deposit of $25,000 is needed for the minimum five per cent deposit.

The good news for savers and buyers is that Sydney’s median house price has fallen to one million dollars and is tipped to keep falling. That requires a minimum deposit of $50,000. The median home price is Sydney (including houses and units) is $876,000, requiring a minimum five per cent deposit of $43,800. In Melbourne the median home price is $711,500, requiring a minimum deposit of about $36,000.

What is Lender’s Mortgage Insurance?

Do you know what Lender’s Mortgage Insurance (LMI) is and how much LMI costs?

Lender’s Mortgage Insurance protects the lender if you default on your loan. LMI is not the same as Mortgage Protection Insurance, which is an optional product that you can buy to protect yourself in the case of financial hardship. LMI is a common but significant expense totalling many thousands of dollars.

The cost of LMI depends on:

  • the value of the loan,
  • your employment status (permanent full time or casual)
  • the purpose of the property  (investment or owner-occupied)
  • The insurer (Genworth or QBI)

Deposits for buying a home start at 5 per cent of the purchase price of the property to be mortgaged. Almost all lenders in Australia will require a Lender’s Mortgage Insurance policy to be taken out for loans made with deposits under 20 per cent of the property value.

The good news for buyers is that you don’t need to pay your LMI upfront. Most lenders will add the cost of the LMI policy to your mortgage, so you will repay the cost with your home loan repayments. That will add interest to the price so it’s worth avoiding if you can.

Based on data from major LMI provider Genworth, a LMI policy for a loan based on a property worth $500,000 with a five per cent deposit will be in the vicinity of about $16,000.

How much are pest and building inspections?

Pest inspections and building inspections can cost hundreds of dollars, or even more if the property is extremely large or there are complications. However, most inspections will be in the range of a few hundred dollars for a standard residential property.

How much are mortgage loan application fees?

Home loan mortgage application fees range from zero to over $1400 and average around $500. Other fees you may need to watch out for include:

  • Home loan settlement fee – could be around $200 – $300
  • Home loan establishment fee – average around $500
  • Ongoing loan fees – could add up to more than $100 per year
  • Early exit fees – These typically are low on variable rate loans (about $100 to $200) but can be particularly high on fixed rate loans.

How much does conveyancing cost?

Average conveyancy costs for home buyers in Australia range between  about $500 to well over $2000. In Melbourne the average cost of conveyancing for buyers is about $870 – $1050, including the costs of property and name searches, according to thinkconveyancing.com.au. In Sydney the average costs are about $1100 to $1400.

How much is government stamp duty for home buyers?

Stamp duty is a state government charge based on the value of the property and can total tens of thousands of dollars or even more. Some state governments have stamp duty concessions for first home buyers or even grants but some of these only to buyers purchasing brand new homes.

In addition to stamp duty, you may also be charged loan registration and title transfer fees which will equal a few hundred dollars in total.

Buying a $500,000 property in Victoria will attract stamp duty and other government fees of about $23,000 according to Aussie Home Loans. In NSW a property fo the same value will cost about $18,000 in state government duties and fees.

How much does Home and Contents Insurance cost?

Your lender will require you to take out insurance to cover your home, and possibly even your contents as well.

The average cost of home insurance in NSW and Queensland is currently about $1,000 and about $1400 for contents coverage as well. Tasmania boasts the lowest average costs for home and contents insurance of about $900 on average.

How much does moving house cost?

Removalists, perhaps storage costs, plus connection costs for utilities need to be factored in here. Removalist costs vary wildly and start very low but you get what you pay for in this market. A family with a house full of furniture and household items will need to budget at least $2,000 for moving.

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