There is no time like the present to start stashing your cash for a deposit. The longer you put it off, the harder it can be to develop good savings habits.
Unless you win the lottery, inherit or receive some other windfall, chances are you will need to make sacrifices to save. This may mean finding cheaper rent or moving back in with parents, while making some tough choices about how you spend your disposable income.
Make an honest appraisal of all your living expenses and decide where you can cut back. Once you know how much you can actually save, set up a direct deposit from your pay into a separate savings account with no card access. That way you won’t be tempted by ATM withdrawals or EFTPOS purchases.
It may not be easy, but it will be satisfying to watch your nest egg grow, knowing your homemade lunches and big nights in will eventually reap financial rewards.
If your loan amount is more than 80% of the value of your dream property, you will also need to pay Lenders’ Mortgage Insurance (LMI). This is a one-off insurance payment charged by lenders, to borrowers who are considered a higher financial risk.
Your risk to lenders is determined by your loan to value ratio (LVR), which is the amount you wish to borrow divided by the lender’s valuation of the property you wish to buy. Lenders generally like to have at least a 20% buffer, so if you have to default on the loan, they stand a good chance of recouping the loan amount through the sale of your property.
Ideally, you should start with a 20% deposit to avoid paying LMI. For some borrowers, however, LMI is considered a worthy investment to help secure a loan with a lower deposit.
The critical factor is whether your income can support the higher loan repayments. We can give you an LMI estimate based on your financial situation before deciding how much you need for your deposit.
