How Much to Put for House Deposit?

eagleoftheeast on 31/05/2017 - 20:39

Hi,

I was wondering what percent deposit home buyers are putting to purchase property?

Does anyone regret not saving for a bigger deposit?

I know all about LMI and financial reasons why you should give at least 20% but I noticed many buyers don't.

My two new neighbors have only place 10% for their properties. One of them has interest only loan which seems to a bad idea.

I also meet a buyer who purchased a home with a 8% percent deposit and plans to subdivide the backyard to build another townhouse for profit. I was wondering is this realistic?

I remember growing up with parents when they purchase their first home with only 10% deposit and there were many financial hardships my parents faced,

Thanks,

Poll Options expired

  • 47
    Greater than 20%
  • 4
    Between 15-20%
  • 2
    Between 10-15%
  • 3
    Less than 10%
Financial

Comments

  • activ8newbs on 31/05/2017 - 20:45
    +1

    I don't have much knowledge. But my strategy at the moment (nil experience) is to pay as little deposit as possible (For investment property) while still getting away with no LMI Cost.

    So if I can pay 5% deposit and somehow pay not LMI (I know this is ambitious), then I would do that. Then hopefully in a couple years I can expect some decent equity in the property and let that do all the talking.

    I could be wrong.

  • BensonP on 31/05/2017 - 20:49

    I had 25%. Purchase price was $418,000

    I'd aim for 20%, obviously, but 10% is very common. I know people that have done 5%…and regret it. The LMI was very high!

    Interest only (generally) isn't a smart idea unless it's an investment.

    • [Deactivated] on 31/05/2017 - 21:13

      Interest only (generally) isn't a smart idea unless it's an investment.

      Should be okay, if you're disciplined and save money in an offset account.

    • conan2000 on 31/05/2017 - 22:52

      Debatable whether it's a smart idea on an investment as well. You're gambling on capital growth, if the bubble bursts you can end up in a bad situation, at least with principal and interest you minimise that risk.

  • ziaxk87 on 31/05/2017 - 20:59

    People try for more than 20% but waiting for it means you are still renting for longer period and property market going up with time..so in saving LMI you might end up paying the same amount in rent and property price might increase more than 10-15k thus giving you nothing for your more deposit.
    with bigger deposit, you can shop around with banks as well for better rates which in long run can save you money… but with interest rates at lowest you might get good deals even now.
    it might be better from others perspective to go for loan with whatever deposit they have!

    there are number of ways to not pay LMI…
    1. ask a friend for loan
    2. ask a friend who already has home loan for money and you pay with interest
    3. parents providing gift money
    4. parents acting as guarantee on your deposit..basically it comes off their home loan
    5. sell an expensive car and downsize, use that money for deposit
    6. use other investment property for deposit
    7. take citibank ready credit 0% for 24 months (they run promotion every now and then)
    8. downsize to 3room house (do you really need 4rooms with an acreage, just an example)

    Keep in mind all these steps will save you money but there is potential you might spoil relations with people from whom you took money…or even worse some people might not payback (not intentionally)

    • [Deactivated] on 31/05/2017 - 21:12
      +4
      1. Certain professions (doctors, lawyers, accountants) qualify for LMI waivers at 90% from some banks.
      • John Kimble on 01/06/2017 - 15:53

        Cool, I'll just become a doctor or lawyer…

        • [Deactivated] on 01/06/2017 - 16:49
          +1

          I know a few reputable websites where you can purchase an MD or JD for $9.95 …

        • ziaxk87 on 02/06/2017 - 15:48

          @sp00ker: what is MD or JD???and is it genuine

        • [Deactivated] on 02/06/2017 - 15:50

          @ziaxk87:

          is it genuine

          Yes - 'reputable' website implied that.

        • ziaxk87 on 02/06/2017 - 15:51

          @sp00ker: apologies didnt read it properly/

          again what is MD or JD

        • [Deactivated] on 02/06/2017 - 15:55

          @ziaxk87:

          again what is MD or JD

          Google is your friend.

      • ziaxk87 on 02/06/2017 - 15:49

        yes but you also have to be earning above $150k and if someone is earning above $150k then there is no need for them to worry too much

        • [Deactivated] on 02/06/2017 - 15:53

          yes but you also have to be earning above $150k

          I haven't come across that requirement, but each lender will have their own criteria.

          and if someone is earning above $150k then there is no need for them to worry too much

          A 150k salary could only service a ~600k mortgage … doesn't go very far these days in lots of cities.

  • OhNoUShiz on 31/05/2017 - 21:05
    +1

    I reckon the lesser the loan the better it is so i can sleep well every night.

  • [Deactivated] on 31/05/2017 - 21:10

    For investment - as little as possible
    For PPOR - as much as possible

  • [Deactivated] on 31/05/2017 - 21:20

    1000 eneloops

    • Kangal on 31/05/2017 - 23:09

      and how many bikies?

  • tsunamisurfer on 31/05/2017 - 23:06

    In general more deposit is better because interest payable is always more than interest receivable, furthermore interest receivable is taxable.

    However there is a missing element to this discussion, where are the prices going?

    If the prices are rising by 10% a year then getting into the market ASAP even with LMI makes sense.

  • conan2000 on 31/05/2017 - 23:09
    +4

    If you can avoid LMI great, but if you can get into a property with a 5% deposit now and pay LMI it can work out a lot better than just saving on LMI.

    E.g. If you pay a 5% deposit on a property of $500k, that's $25k and say $15k LMI (I have no idea what the actual LMI figure would be). Otherwise you can wait, and save up the extra $75k to cover the 20% deposit, this might take years, by which point the property may be worth $600k. You now need another $20k deposit to save paying LMI and have missed out on $100k of capital growth. You'd also need another $20k over what you did initially to buy the same property.

    If it's an investment property there is even less reason to save extra deposit as LMI is tax deductible.

    So in short, yes, definitely avoid it if you can, but I wouldn't be worrying that much about paying LMI if you're buying somewhere you'll get capital growth at a reasonable rate. If the market where you're looking isn't rising, then maybe it's worth saving a bit more!

    I've had friends try and do this and they end up in a never ending game of trying to save more, they need a bigger and bigger deposit and the house prices have now got to a point where they'll be borrowing an extra $400k if they bought what they initially wanted.

    Some banks give better interest rates if you borrow less than 80%, best thing to do with this is refinance as soon as capital growth takes you over this threshold so that you can get a better rate.

  • garetz on 01/06/2017 - 03:06
    +1

    Debt is leverage, there are many factors at play here, is it your first property or 10th property. If its your first you want to have a 20% deposit, if your 10th, then 0% deposit or whatever you can get away with.

    The management of debt is important in growing your portfolio/networth. Obviously the higher your debt to equity ratio the bigger the risk you take on a flat or falling property market.

  • Gunther on 01/06/2017 - 16:07

    20%… not a dollar more. Rest goes into offset.

    • Sira on 01/06/2017 - 19:04

      Yes you actually raise an interesting point. 80-95% I would say pay as much deposit as you can to get to 80%. If you do get to 80% however don't pay a dollar more. 79.9% is pointless, borrow it and put the rest into the offset. Getting that money out later can be a nightmare, especially as rules and regulations change… (I work in home lending).

      • Colombian on 02/06/2017 - 06:11

        Care to elaborate please? Like in a dummies way? I'm really interested.

        • Sira on 02/06/2017 - 11:54
          +3

          Sure, so lets say you are purchasing a house for $500k you have a $200k deposit saved (i know that's rare, but for arguments sake). You have stamp duty concession as you are a first time buyer so effectively all your deposit is going to the bank/loan. $300k/500k = 60% LVR. Don't do this!

          Provide the bank $100k deposit (instead of $200k) now the loan = $400k/500k = 80%. At 80% you get cheaper rates, no LMI, less hassle (as there is less risk essentially). You hold on to the $100k then the day the loan is set up you put the remaining $100k into a redraw/offset account.
          This allows you too do what you want with the money but at the same time you are not paying any more interest than if you had given this bank the money in the first place. Now if you need the money for an emergency, it's yours to draw on. If you had given it as a deposit, you then need to go back to the bank to do a 'top up' to draw the equity which can be a nightmare.

        • Colombian on 02/06/2017 - 12:57
          +1

          @Sira: Perfect, very clear, thank you for your explanation.

  • billy3000 on 01/06/2017 - 20:24

    You need just over $100k cash to buy a house for $610k(inckusing all fees and stamp duty) borrowing 90%.. LMI is painful but was unfortunately necessary for me.

    • whooah1979 on 02/06/2017 - 06:31

      You need just over $100k cash

      this may help.
      https://en.wikipedia.org/wiki/Hui_(informal_loan_club)

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