How much deposit do you need to purchase a house? Well, it depends on many factors. Where once it was easy to get a loan for 100% of the purchase price, lending criteria are stricter these days. It is still possible to get a 100% loan with the help of a guarantor, but most lenders have restricted the loan to value ratio (LVR) they are willing to lend.
The big Australian banks and some lenders still lend up to 95% of the purchase price and allow you to capitalise the lender mortgage insurance (LMI) for up to 97% of the property value. You would still need funds to pay for stamp duty, registration of mortgage and registration of transfer. But, your employment and savings histories must meet lending requirements.
From 1 July 2017, for the first home buyers, the Victorian government has abolished the stamp duty for purchasing a home where the purchase price is less than or equal to $600,000. Additional discounts are available on a sliding scale when purchasing a home with a dutiable value between $600,001 and $750,000.
The First Home Owner Grant (FHOG) has been increased from $10,000 to $20,000 for new homes built in regional Victoria and valued up to $750,000. Eligible first-home buyers of new homes in metropolitan Melbourne will continue to receive the $10,000 FHOG.
When looking to finance a mortgage, here are some tips to help you get started.
One of the most common reasons for the refusal of home loan applications is due to adverse entries on applicants’ credit reports. You need a clean credit history. This means no rent arrears, no outstanding bills, and all credit card and loan payment paid on time. So, if you have any outstanding debts, get up-to-date and make sure that there are no adverse entries in your credit report before applying for a loan to purchase a house.
Lenders are not too keen on borrowers without a stable employment history. You will need to be in your current job for between 6 to 12 months. Lenders require proof of employment and income as part of your application. At a minimum, these include payslips, group certificates and bank account statements. In the case of self-employed applicants, and where payslips are not available, BAS statements, ATO notice of assessments and tax returns are used.
Proof of Genuine Savings
The more cash you have for a deposit, the less you need to borrow. Lenders want proof of genuine savings. This shows the lender your ability to regularly commit to paying a set amount of money. It sets a pattern for loan repayments. The lender may want proof that you have saved 5% of the purchase price. A cash gift from family may also be acceptable to some lenders.
Here are some savings tips to get you started:
- Create a budget: Stick to the budget you create and factor in your everyday costs. Open a savings account and put a set amount in there every time you get paid. Better yet, ask your employer to split your wages between the accounts if you can.
- Cut back: Cut back all unnecessary expenses such as takeaway meals, holidays, and club memberships you never use.
- Make your money work: Make your savings work for you by using a high-interest savings account.
If you are unsure about anything we have discussed in this article, then please contact us and one of our mortgage finance specialists will explain in detail the home loan application process and requirements.