5% Deposit Myth

Here is the fact: In the residential mortgage lending space, there is no 100% lending solely against a single property in Australia today. In other words, you are required to contribute certain amount of cash towards to your first home purchase. However, the million-dollar question is: In order to purchase your first home, what could be the minimum amount of saving you will need to prepare?

The simple equation to work out the answer of this question is:

Purchase Price + Costs <= Required Loan Amount + Available Fund

The more advanced equation for you to work out the answer of this question is:

Purchase Price + Government Cost (Stamp Duty / Title Transfer / Title Search Fee / Mortgage Registration) + Bank Fees + Legal Cost (Your Conveyancer / Solicitor Fees) + Lender Mortgage Insurance (LMI, if applicable) + Settlement Adjustment (Council Rate / Water Rate / Owner Corporation Fee / Others)

<=

Required Loan Amount (may include LMI) + Available Fund (Current Cash Saving / FHOG / Stamp Duty Discount / Gift Fund from the parents / Others)

Most of the lenders (banks) in Australia today can only lend you up to 95 percent of the property value (or purchase price). In other words, in addition to the 5% deposit you have today, you will need to have enough saving to cover other costs listed in the equation above. As a result, even when a lender tells you that you are eligible to borrow 95 percent of the property value, you may still end up with a shortfall in settlement funding and not be able to purchase your first dream home if you only have as little as 5 percent of purchase price in saving as your deposit!!

Why There are Low/No Deposit Home Loan in the Market?

Many brokers or Lending Managers will package lenders’ 95% Home Loan or 97% Home Loan product together with personal loan product or private funding to help first home buyer to get into the market. However, it is not a true Low/No Deposit home loan. It can be considered as one of many options when you do not have enough deposit, yet the loan repayment may cost you fortune. At Tree Finance Group, we always acting on your best interest while providing you with our recommendations. It is our priority to provide you the best possible and affordable solution within your situation.

What if I Do Not Have Enough Deposit?

There are other options that may still available to you if you do not think you have enough deposit, hence it is very important for you to speak someone who are experienced. At Tree Finance Group, we have helped many Australian families to get their first dream home under different scenarios. Speak to us today and we will assist you to explore the possible options that may available to you now or in the near future.

Lenders Mortgage Insurance (LMI)

Lenders Mortgage Insurance (LMI) is an insurance protects a lender in the event that you default on your home loan. It only applies when you borrow more than 80% of the property value, and you will need to pay insurance premium once to insure the required loan amount.

The insurance premium is vary from lender to lender, and is calculated based on the loan to property value ratio (LVR). It is possible to borrower LMI and add it into your home loan. Although there are some lenders advertising no LMI charge for a loan less than 90% lending, they may charge “Risk Fee” instead. Overall, working out how much LMI/Risk Fee you may need to pay is crucial, because it will have impact to your funds position while planning of purchasing your first home.