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How much of a deposit do you need to buy a house?

Let’s break your question into three parts. But before we do, let’s touch on one assumption. The assumption is you’re not going to use a guarantor for your home loan. With a guarantor, it’s possible to borrow 100% for your house deposit. But there are risks.

What’s the minimum deposit you need to buy a house?

The minimum deposit is 5% of the purchase price plus associated transaction costs. If you look in the table below at “5%”, you can get an idea of how much lenders mortgage insurance (LMI) and other costs will be.

What’s an OK amount to have as a deposit for a house?

An OK amount is 10%. It’s better than having a 5% deposit.

Take a look at the tables below for 5% and 10%. Notice how much the LMI fee is for each. You’ll notice the LMI fee (which is a fee you pay to protect the lender, not yourself) is less when you move from a 5% deposit to a 10% deposit.

For example, when purchasing a house in Victoria for $727,000 with only a 5% deposit, you’d need to pay about $33,690 in LMI. That’s $33,690 which you could have used to buy a new Toyota Camry.

But if you had a 10% deposit, you’d only need to pay $17,831 in LMI.

Hence, the difference in LMI fee for purchasing a house in Melbourne for $727,000 for a 5% and 10% deposit is:

$33,690 minus $17,831 equals $15,859.

You’d save $15,859 by having a 10% deposit instead of a 5% deposit.

You can see the same pattern between the 5% and 10% deposit in the table below.

What’s an ideal amount to have as a deposit for a house?

The ideal deposit to buy a house is 20% plus transaction costs. With this deposit, you don’t have to pay any LMI fee.

With a 20% deposit, you also have more of a buffer in the event of house prices going lower over time.

It’s also easier to refinance to other lenders when they have more competitive offers.

Say you only had a 10% deposit when you bought your property. Two years have passed. House prices have stayed the same. You want to refinance across to a different lender who has a more competitive interest rate. The new lender requires you to pay the LMI fee again. This means it’s not financially worth switching. Whereas, if you had a 20% deposit, you wouldn’t need to pay the LMI fee with the new lender.

How do I calculate a percentage?

What is 10% of $100,000?

Multiply the percentage you want to calculate (10%) by the total figure ($100,000) and then divide by 100.

Step 1:

10% x $100,000 = $1,000,000

Step 2:

$1,000,000 / 100 = $10,000

So 10% of $100,000 is $10,000

If the asking price for a property is $500,000 and you have $50,000 in cash available for a deposit, do you have a 10% deposit?

The answer is no.

Because the deposit is less than 20%, you’ll likely have to pay lenders mortgage insurance. Other fees can include stamp duty, building/pest inspection fees & conveyancing fees etc.

If you $50,000 plus enough extra cash to cover the transaction costs then yes, you have a 10% deposit.

Mortgage brokers aren’t obligated to calculate all the transaction costs for a given transaction. Yet, we do have enough tools at our disposal to make the process a lot easier for our clients.

How much of a deposit do I need for a house worth $300,000 in Victoria? (First time home buyer)

How much of a deposit do I need for a house worth $727,000 in Victoria?

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