Finance Aug 3, 2021

What deposit do I need to buy my first home in 2021?

4 min read

Screen Shot 2021-08-03 at 10.43.31 am
Screen Shot 2021-08-03 at 10.43.31 am

As a first home buyer, in many cases the biggest barrier to buying is saving up the deposit. In Melbourne, the average time it takes to save a deposit based on the median house price is 5.5 years.

Do I need a 5%, 10% or 20% first home deposit?

We recommend our first home buyers save a 20% deposit plus costs (costs includes things like conveyancing, stamp duty, building and pest inspections, mortgage registration, rates and loan application fee).

Depending on the purchase price the costs could equate to anything from $2,500 to $60,000 so it’s important to know what these expenses are going to look like before you make an offer. For a detailed look at what these costs are, check out our blog here.

A 20% deposit means you have a wide variety of lenders to choose from, may have access to lower interest rates and won’t need to pay Lenders Mortgage Insurance (more about this below).

My family are gifting me money

For those lucky ones whose family are gifting funds to go towards the property purchase, we would recommend they deposit this into your bank account at least three months in advance. This allows the funds to be classified as genuine savings and reduce the paperwork you’d need to provide, such as a statutory declaration.

When would I have to pay Lenders Mortgage Insurance?

If you have less than 20% to contribute to your property purchase, then you will be required to pay Lenders Mortgage Insurance (LMI). You don’t generally pay this upfront as it can be capitalised onto your home loan, but it will accordingly increase the amount you need to borrow and your repayments.

The beauty of stamp duty exemptions

In 2021 the Victorian state government are giving substantial concessions to first home buyers. If you are buying for $600,000 or less then you receive the first home buyer exemption, meaning you don’t pay any stamp duty (subject to eligibility criteria). For purchases $600,001 to $750,000 you pay a discounted stamp duty (again subject to eligibility).

This can save you a lot of money (think $21.9K on a $500,000 purchase!) that you would otherwise need to have saved up to pay for. Just remember, for any future purchase you will likely have to pay stamp duty and you’ll need to have this amount to contribute independent of your deposit.

Need some help working out what deposit to save? Get in touch, our expert brokers are here to guide you through.

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