Thanks for the question Kylie.

This would have to be one of the most frequently asked questions we get here at Mortgage World Australia. Here’s some advice that will help point you in the direction in terms of knowing how much deposit you need and what your options are.

The absolute minimum deposit required to purchase a property would be 5% of the purchase price unless you have a family member who owns a property and is happy to act as your guarantor. In addition to the deposit, there are associated costs such as conveyancing fees, government charges, stamp duty and bank fees. We recommended an allowance of $3,000 for costs plus the stamp duty, which would vary from state to state, and be dependent on whether you are eligible for any concessions.

Historically 5% deposit, plus costs, could be accepted on condition the lender would finance 95% of the purchase price plus mortgage insurance. Today very few lenders finance at 95% plus mortgage insurance so you may also need to have sufficient funds to pay the full mortgage insurance premium. This is compulsory when borrowing more than 80% of the purchase price.

There are some instances where mortgage insurance is not applicable, this is usually limited to certain occupations such as doctors and sometimes waived for solicitors and accountants, only if they’re borrowing no more than 90% of the purchase price of the property.

Is 5% deposit realistic or should one aim for 10%?

Every state has different stamp duty fees and assuming you are a first-time home buyer eligible for first-time buyer concessions. A first home with a purchase price of up to $650,000 in NSW will not incur any stamp duty. So, in this instance, a deposit of 5% of the purchase price plus approximately $3,000 to cover the solicitor and loan administrative costs may be sufficient. So around $35,500 as a minimum if you qualify at a lender who will lend 95% of the purchase price plus the entire mortgage insurance premium.

Those that are current or previous property owners wouldn’t be eligible for stamp duty concessions and are less likely to be able to borrow 95% of the purchase price PLUS the entire mortgage insurance premium. If you are in this category, and looking to purchase a $700,000 property in NSW, you will need the following amounts:

$35,000 5% deposit +

$26,990 stamp duty +

$3,000 approximate conveyancing and government charges

$64,990 TOTAL

In addition, if you use a lender that will only lend to a maximum of 95% of the purchase price, including mortgage insurance, you will need another $22,000 possibly. So in total you would need $87,000 approximately.

In this scenario it would be significantly cheaper in respect to mortgage insurance if you are able to contribue a 10% deposit plus stamp duty and purchase costs. Most lenders will lend 90% plus mortgage insurance.

Instead of paying around $22,000 in mortgage insurance, if you keep the loan to 90% plus mortgage insurance, the insurance premium is much less at around $14,000. To purchase a property for $700,000 using a 90% plus mortgage insurance loan the amounts needed would be as follows:

$70,000 10% deposit +

$26,990 stamp duty +

$3,000 approximate conveyancing and government charges

$99,990 TOTAL

Is the deposit required affected by the property type I would like to purchase?

The minimum deposit required can certainly be linked to the type of property purchased.

A studio apartment which is less than 40sq meters internally will not normally be financed to more than 80% of the property value so you would need a 20% deposit plus costs. A rural property may have restrictions on the percentage one can borrow due to the risk it may represent. 

It’s also worthwhile to note that there are occasions where lenders will restrict lending in certain locations. While this is not openly published be aware that 95% loans may not be possible in certain postcodes with various lenders, regardless of the property type.

Interested in speaking with us?

Since 2001 Mortgage World Australia has helped hundreds of clients around Australia realise their dream of home ownership by spending time with them to help find the best home loan for their needs. Through our affiliation with the largest network of individual mortgage brokers in Australia we are able to offer most clients around the country a personalised service.

Whether you are a first home buyer just starting out on your real estate journey, an experienced investor or you are just looking to get a better deal on your current home loan then we can help.