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Why the Deposit is the Key to Successfully Buying a Home

The most critical, and most regularly misunderstood, part of the home buying process is the deposit. There are many conflicting narratives about the deposit floating about in the general population, including the popular belief that it must be 20% of the home’s value.

This is not always the case, but it is a good rule of thumb when you factor in stamp duty, legal costs and building and pest inspection costs. However, it is possible to buy a home with a deposit as low as 10% of the purchase price (provided that you take out lenders mortgage insurance).

So what should be your first step when you are saving for a deposit?

Develop a Savings Plan

Most mortgage lenders insist that borrowers provide evidence of regular savings before applying for a home loan. Some lenders also insist that mortgage applicants leave the deposit money in a savings account for up to 12 weeks to demonstrate your ability to save; this is quite common when your deposit comes in the form of a gift or an inheritance. In some rare cases rental history can be provided as evidence of regular payments.

This is why it is so important to have a savings plan in place. Why would any institution lend you money if you don’t have a proven capacity and plan to pay off the mortgage?

Savings Calculators

There are many tools provided by Holiday Coast that will help you save for a deposit, especially our collection of savings calculators. These tools will show what your current financial situation looks like, and how long it will take you to save up the deposit money.

Remember, there will be many other expenses related to the purchase, including the stamp duty, legal costs, the building inspection costs and the pest inspection costs.


Find Your Dream Home Faster

Believe it or not, having a deposit in place can help when it comes time to find your dream home. If you can demonstrate that you are in a position to buy, real estate agents will see that you are serious about purchasing a property.

Despite the fact the online listings on Domain and are the most convenient places to start your search, don’t forget about your local newspaper and real estate newsletters. You can still find an undiscovered gem the old fashioned way!


Other Options for First Time Home Buyers

There are some other options for first time home buyers who will struggle to raise a large deposit. With the help of a guarantor, you can borrow 100% to 110% of a property’s purchase price. In many cases, you’ll only need to raise a few thousand dollars to take advantage of this option.

First time home buyers should definitely take advantage of the government’s First Home Owner Grant. The government will give first time home buyers a grant to help them afford their first home, provided they meet the eligibility criteria.

For more information, check out this helpful video from - Tips for First Home Buyers.

We know that the process to securing a deposit can be confusing, so if you have any questions at all, call us at 1300 365 7 24 or drop into a Holiday Coast branch near you.


This article provides general information only and should not be relied upon as financial product advice.

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