How much deposit do I need to purchase a property?
- Posted Getting Started
One of the biggest hurdles to buying a property is saving for a deposit. The deposit is used to purchase part of the property and is often a factor in your application assessment by a lender or mortgage insurer. But it can be hard knowing exactly how big your deposit should be.
While in the past some lenders offered home loans without requiring the borrower to have sufficient funds for a deposit, that’s not the case with Pepper Home Loans or most other lenders anymore. The minimum deposit to take out a Pepper Home Loan (on some products only) is 5 per cent of the purchase price of the property, but this will depend on how much you are borrowing and the type of loan. You will also need money available to pay the fees and charges associated with your loan, so it’s a good idea to speak to one of our Lending Specialists to make sure you’ve got the deposit and additional funds that you need.
Determining your deposit
Lenders generally use what’s called a loan-to-value ratio (LVR) to calculate the amount of deposit you need. For example, an LVR of 95 per cent means that the amount of your loan is 95 per cent of the value of the property. If the property is valued at $300,000 and you have an LVR of 95 per cent, you can borrow $285,000. The remaining $15,000 would come from your deposit.
The amount of LVR that a lender may ask for is dependent on the property value, the borrower’s circumstances and which particular product they are applying for.
At Pepper, we assess your application on its individual merits, rather than just relying on a credit score. One of the factors we may look at is your ability to save a deposit.
Pepper's security processes
Most banks may be willing to lend to people who have a deposit of less than 20 per cent, but that will require you take out lenders mortgage insurance (LMI). This is insurance that covers the lender if you default on your loan – like an extra buffer zone for the lender’s risk.
At Pepper, we do not require third-party LMI approval. However, we may ask you to pay a mortgage risk fee (MRF) to secure ourselves if you’re not able to meet your repayments. Some other lenders would need to seek third-party insurer approval, which adds in another step in the process and may make it more difficult to obtain a loan.
Another thing to remember when you’re working out how much money you need to save before you buy your property is that the deposit only covers the property price. There may be other costs you will have to pay upfront that will also need to be saved for, such as conveyancing, lender’s fees and stamp duty. It’s worth factoring these all in when doing your sums. We recommend speaking to your conveyancer or lawyer to confirm costs involved.
Genuine vs non-genuine savings or gifted deposits
It’s important to remember that some lenders won’t accept a gifted deposit – for example, a loan from your family or relatives – as ‘genuine savings’ and have strict policies around only genuine savings. Borrowers may want to do their research before assuming this secures them a loan.
Pepper accepts 100% gifted deposits on a majority of products; however, an assessment of individual circumstances and eligibility based around credit/ repayment history, employment, income, and existing debt is still required. Other forms of deposits, such as a second mortgage, private loan and non-genuine savings may also be accepted. For more information, speak to a Lending Specialist on 13 73 77.