How Much Should I Save for a House Deposit?

A House Deposit Is Only One Part of the Amount You Need to Save

A house deposit is the buyer’s own money contributed towards the purchase price of a property. The remaining amount is generally covered by the home loan, subject to the lender assessing a borrower’s income, expenses, debts, credit report and overall borrowing power. Many home buyers focus on the deposit percentage, but there can also be other upfront costs to allow for. These may include stamp duty, legal fees, moving costs and other costs connected with buying a property. Some first home buyers may be eligible for a First Home Owner Grant or other government schemes, depending on their circumstances, eligibility criteria and current government rules.

A Bigger Deposit Can Affect the Amount You Need to Borrow

Saving a bigger deposit may reduce the loan amount compared with buying the same property with a smaller deposit. This may also mean lower home loan repayments because less money is borrowed, although repayments still depend on the interest rate, loan term and loan features. A larger home loan deposit may reduce the likelihood of needing to pay lenders mortgage insurance, depending on the lender and loan structure. Lenders Mortgage Insurance, or LMI, may apply where a borrower has a smaller deposit, depending on the lender, loan amount and property value. Lenders mortgage insurance LMI protects the lender rather than the borrower, and the cost can vary depending on the loan and lender.

A Smaller Deposit May Still Provide a Path to Home Ownership

A 20% home deposit is commonly used as a reference point, but it is not the only possible deposit size. Some lenders may consider a smaller deposit, depending on their lending requirements and the borrower’s financial situation. For buyers considering whether to save for longer or buy a home sooner, the comparison is not only about reaching a particular deposit figure. A smaller deposit may mean a larger loan, possible LMI and higher mortgage repayments, while saving a bigger deposit may take more time. A broker can explain how different deposit levels may affect the loan options available without assuming one approach is suitable for everyone.

Your Savings Plan Can Start with the Expected Property Price

A practical savings goal can begin with an approximate property price and an estimated loan amount for consideration. From there, some home buyers may consider existing deposit savings, extra cash needed for upfront costs and how different monthly repayments could affect their budget. Some people may choose to keep money for saving for a deposit in a separate savings account to make it easier to track. A high interest savings account may offer bonus interest when certain account conditions are met, although interest rates and conditions can change. Reviewing spending may help some people save money more consistently, although a savings goal will generally depend on income, rent, expenses and other financial commitments.

Borrowing Power Can Be Different from Your Deposit Amount

Having enough money for a home loan deposit does not necessarily mean a lender will approve the loan amount being requested. A lender will generally assess the proposed repayments alongside factors such as income, existing debt, everyday expenses and other financial commitments. This is where borrowing power becomes relevant. Two home buyers with the same deposit may be able to borrow different amounts because their financial situations are different. A broker can help borrowers understand how lenders may assess an application and compare home loan options across different deposit and loan amount scenarios.

Loan Features Can Also Affect How You Manage Your Money

The deposit is important, but the structure of the home loan can also affect how repayments and savings may work after settlement. Some home loans may include an offset account, where eligible money held in the linked account may reduce the balance on which interest is calculated. Some borrowers may consider keeping savings separate for future costs rather than using all available money towards the house deposit, depending on circumstances. Having money available after buying may help with moving costs, property expenses or an unexpected one-off payment. The appropriate approach will depend on the borrower’s financial situation, the lender and the home loan structure being considered.

Setting a Realistic Deposit Target

Eurobodalla Finance can help borrowers compare home loan options and understand how different deposit sizes may affect borrowing power, lenders mortgage insurance and repayments. A broker can also explain factors to consider before applying, while any home loan remains subject to lender assessment and applicable eligibility requirements. This article is general information only and does not take into account objectives, financial situation or needs. It is not personal advice. Loan approval, borrowing power, costs and eligibility for government schemes depend on individual circumstances and lender or scheme requirements.