You want to buy a house. Great! And you have seen the property of your dreams. Awesome!

So, how much deposit do you really need for a first home loan?

The ideal home loan deposit

We often see potential first home buyers go full steam ahead with a property purchase, not fully understanding the contribution they will need to provide.

We love the enthusiasm, but frequently we are handing out reality checks. The ideal deposit amount is 20% of the property value held for three months. This will help you avoid Lender’s Mortgage Insurance (LMI) – a one off cost applied to high risk, low equity loans.

But if coming up with this kind of money is no more than a pipedream, there are other options.

First Home Loan Buyer Scheme

Formally known as the First Home Loan Deposit Scheme, the incentive was rolled out by the previous government to assist buyers in getting into their first home faster by shortening the time needed to save for a deposit.

Giving potential first home buyers the opportunity to purchase a home with only a 5% deposit, the scheme also allows the applicant to be exempt from paying Lenders’ Mortgage Insurance as the government essentially acts a guarantor for the remaining 15% deposit.

First Home Loan Buyer Scheme Eligibility

To qualify for the FHBG, the applicants must be:

• applying as an individual or couple
• an Australian citizen at the time they apply for the loan
• over the age of 18 years.
• earning up to $125,000 for individuals and $200,000 for couples.
• purchasing for owner occupation
• first home buyers who have not previously owned a property in Australia

The low deposit home loan

Some banks will lend up to 95% of the property value but these applications will be subject to Lenders Mortgage Insurance (LMI), the cost often running into the thousands depending on the loan amount and the loan to value ratio.

But beware, you might be willing to wear the LMI cost but quite often interest rates and bank policies differ when you are unable to meet the 20% deposit requirement. This is crucial to understand.

These differences in rates and policies also differ between lenders.

The really low deposit home loan

There is also a viable option through one current lender who will accept as little as 1% deposit.

This needs to be reflected as “genuine savings”, that is, held in an account in your name for at least three months.

However, this lender is restrictive as to who can qualify for the 1% loan product and the loan is not priced as competitively as other institutions.

The non existent deposit

No deposit? No genuine savings? There is a Plan B.

Parental guarantees are still frequently used to assist first home buyers enter the property market.

This involves a parent or immediate family member offering their own property as security usually up to 20% of the purchase price.

While there are many factors that come into play to make this alternative viable, it does ease the need for a deposit and genuine savings.

But can you afford it?

In the property buying transaction, it’s not just the deposit contribution which is a mitigating factor, but your serviceability or capacity to borrow.

You may have the 5% or even 20% to put down on the home of your dreams, but it’s all irrelevant unless your income supports the loan amount you need to complete the purchase.

Let’s start the conversation

Before you even start looking at properties, it’s best to speak to a mortgage broker. They can assess your situation and let you know what you can borrow with your current deposit, and advise what you should be aiming to save.