Are you planning to buy a property? If yes, you are scared because it is a significant step – your mind is filled with endless doubts!
“Should I spend all my savings in one go?”
“Am I getting the best deal in the real estate market?”
“Can I afford it?”
To clear your doubts, we only have one thing to say: Say goodbye to renting; go ahead and buy your first property! The real estate market is booming significantly and is your best investment.
But here comes the most crucial aspect—budgeting for your first home. The overall costs include monthly mortgage payments, HOA fees, insurance, taxes, and a down payment. The home deposit is the most important of all these associated costs because it will determine future repayments and interest rates. Moreover, your down payment will also determine the benefits of the first home deposit scheme.
So, we can conclude that your first real estate investment begins with knowing and analyzing your home deposit. To make it hassle-free, here is our detailed guide about down payments.
Home Deposit: What It Is and The Ideal Amount
Before jumping on to anything, let us know what a home deposit is.
A home deposit, also referred to as a down payment and a mortgage deposit, is a fraction of the total property’s value a buyer has to pay upfront. Most sellers typically demand a 20% deposit; however, home deposits can vary significantly from one seller to the other. For instance, if you aim to buy a property that costs $500,000, it is ideally expected to have a total of $ 100,000 as the sum of money you pay upfront.
Let us not forget to mention that a higher mortgage deposit has the following benefits:
- You will have to borrow less amount.
- With a higher deposit, you, as a potential buyer, can get better loan terms, including a first home deposit scheme.
- Overall, your monthly repayment will be lowered.
But even 20% of the total property’s value is a considerable amount. So, does that mean people who do not have enough money can’t dream of buying their dream houses? The good news is that with different schemes, every prospective buyer can quickly enter the property ladder.
Lower deposit rates are also available for buyers buying a property with the help of initiatives like first home loan deposit schemes. The rates can go as low as 5% of the total property value. With schemes and guarantors, you can also purchase if you have no savings for a deposit.
Know Your Down Payment Amount
When budgeting for your first investment in real estate, you will always take advantage of research from your end. To help you, here is an easy way to calculate the home deposit in four easy steps:
- The first step is to research your property preference and its price. The overall cost for any property will depend on factors like supply & demand, market trends, location, infrastructure, etc.
- Once you know the total cost of your dream home, calculate the ideal deposit amount (e.g., 20% of the total property value). [Multiply the total property value by 0.20]. Don’t forget to add upfront costs that come with property investments.
- Now, analyze your total savings and how much you can contribute towards the down payment. Evaluate what benefits you can attain from government initiatives for first home loan deposit schemes.
How To Buy Your First Properties With Smaller Deposits?
Have no savings yet but still want to buy your first home? Cheer up because it is now possible! Here are some of the ways you can make it happen.
LMI Waiver Scheme
When buyers have lower deposits to invest in real estate, most lenders prefer that you pay the costs of LMI (Lenders Mortgage Insurance) as insurance. However, this burdens the buyers with additional repayment. You can take advantage of the LMI waiver scheme to cut down on additional costs.
Read more about the LMI waiver scheme here!
The Home Guarantee Scheme (HGS)
The government offers the Home Guarantee Scheme (HGS) for Australian residents to make housing accessible and affordable. Under this scheme, the homebuyers can benefit from the following guarantees:
- First Home Guarantee (FHBG)
- Regional First Home Buyer Guarantee (RFHBG)
- Family Home Guarantee (FHG)
A Guarantor To Get Credits
Guarantors provide security for investors who are considered risky for lenders. With the help of a guarantor, people with low (or no) deposits can make the real estate deal hassle-free. Generally, close family members, including parents, siblings, or grandparents, fulfill the guarantor requirements.
Remember, the guarantor is responsible for repayments. By any chance, if the buyer fails to make the repayments, the finances are received from the guarantor.
How To Pay For Home Deposits?
Mortgage deposits can be made through standard methods, including cheques (personal and counter) or bank transfers. Before proceeding with payments with the first home deposit scheme, confirming the preferred transaction method from the lender or agent is best.
Wrap-Up
Your home deposit plays a significant role in shaping your mortgage terms and overall financial commitment. With government schemes like first home loan deposit schemes, buying your first property is more accessible than ever.
Read more posts and make home buying smooth and straightforward with FHBA’s experts!
