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What to do when you don't have enough for the deposit

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Having a place to call your own, where you can put your feet up and decorate to your heart’s content, is all a part of the Australian dream. If you’re at this point, then you know there are a few things to think about, particularly when it comes to finances.

How much do I need?

Saving for a home deposit can be challenging in today's economic climate. Higher living costs and endless personal expenses that you still have to manage on top of saving for a new home can hinder your savings efforts.

However, it’s still very important that you start saving for this deposit. Most lenders might let first home buyers borrow up to 95% of the price of the property, but in the long run this will cost you more.

The ideal deposit when buying a home is at least 20% of the purchase price. For example, if you were buying a home for $500,000 then its 20% deposit would be $100,000. Most buyers aim for 20% in order to avoid paying Lenders Mortgage Insurance.

The more you can pay with your deposit, the less you will need to rely on lenders to help you buy your new home. If saving up 20% of the purchase price proves to be difficult for you, don’t worry. Most lenders want to see around 5 to 10% of the purchase price in savings, but this is still a lot of money for many people to save. Savings will be considered only when they have been gathered over a period of at least 3 months.

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Alternate deposit options

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In case you haven’t been able to save your target deposit amount, here’s a list of alternative solutions that you might feel comfortable considering:

  1. A financial gift: Ask your parents or relatives to donate a financial gift to you solely for the purpose of buying a house. There has to be a statutory declaration and witnesses to the signing over for it to be considered legal. The gift they’re making in your name has to be worth at least 5 or 10 percent of the purchase price.
  2. A guarantor loan: If your family has a home of their own, they can help you by using the equity in their home. This way, you could be cleared to get 100% of the purchase price in a home loan (provided your relative or parents have a limited guarantee of 20% of the purchase price against their home). Read our guide to guarantor home loans here.
  3. Buy with a friend: Jointly buying a property with a friend can also be a great solution for when you can't afford it alone. By putting your savings together, you’ll be able to produce the 5 to 10 percent deposit for the home loan.

Buying your first home and saving for a deposit will always be challenging. If you’re able to, consider the First Home Buyers Grant, which is accessible in every state, with differing requirements.

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Tags: first home buyer, deposit, saving

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Important legal stuff

COMPARISON RATE WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years.
Lendi is the trading name of Lendi Pty Ltd, a related body corporate of your licensed credit assistance provider, Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence Number 442372). We will never sell your email address to any third party or send you nasty spam, promise.
EXAMPLE: This example is current as at 20th October 2016. A Click Loans Online Principal and Interest Loan of $150,000 over 25 years has monthly repayments of $767. This is calculated based on the interest rate of 3.69%, comparison rate of 3.69%, upfront fees of $0 and annual fees of $0.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
Lendi is a privately owned and operated Aussie business. Our mission is to provide Aussies with the right experience when choosing a home loan from our panel of major and non-bank lenders including Click Loans which is a wholly owned subsidiary of Auscred Pty Ltd and a related body corporate of Auscred Services, your credit assistance provider. Although Lendi compares over 1600 products from over 30 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 40% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors. We have an independent and founder led board.
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