When it comes to getting a deposit together for that first home, it makes good financial sense to aim for an 80% or lower LVR (loan to value ratio). Why? Because it can save you around $25,000 over the life of a typical $350,000 home loan; that includes avoiding the cost of Lender’s Mortgage Insurance, which can be well over $10,000.
If you can’t quite manage to amass a 20% deposit from your savings, there are other strategies you can consider.
Try our Home Loan for First Home Buyers selector to see what’s available out there, or see our snapshot of those results below in our comparison table, featuring the low rate variable home loan products on offer with a loan to value ratio of 80%, featuring direct links to the providers website.
These have been sorted by comparison rate (lowest to highest). Please note that this table features products that are based on a loan amount of $350,000 with a first home buyers profile in NSW.
Here are three things you can use for a deposit:
1. First Home Owners Grant (FHOG)
Using a First Home Owners Grant for a deposit is great if you’re buying or building a new house or unit, although in some places it can be used for established homes as well. Most states and territories offer grants of $10,000, but some offer more, such as the Northern Territory which has a generous $26,000 grant.
The value of the grant you’re eligible for can depend on who you are, where you live and what you are buying. You can read a summary of what is available state by state here.
Out of the 74 lenders CANSTAR rates for first home buyers, 50 institutions allow customers to use a First Home Owners Grant as a deposit.
2. Using a guarantor
A guarantor is someone that is willing to take on the responsibility of paying off a loan if you’re ever unable to meet the repayments. If you’re lucky enough to know people that trust you enough to let you use them as security for a home loan, they can be your guarantor. Typically, these people are the borrower’s parents, as some banks only allow family members to act as guarantor.
Having a guarantor means you don’t have to pay lenders mortgage insurance. It also means you can borrow up to 100% of the property price.
If your guarantor is especially generous, many lenders will even allow them to provide the deposit themselves. Read more about some pros and cons of parents going guarantor.
3. Using a financial gift as a deposit
Some parents like to give their children money for a deposit as a gift. Many lenders allow this, however, certain conditions usually apply, such as keeping the gift money in an account for a set period of time. The lender might also require a written statutory declaration stating that the money is a gift.
How many institutions allow these deposit methods?
Of course, not all banks will accept one of these methods as counting towards a deposit and a lower LVR. The following table lists some of the options available for first time buyers and the number of institutions who provide those options, based on CANSTAR research:
|FHOG counts as deposit||24||50||74||32.43%||67.76%|
|Financial gift as a deposit||6||68||74||8.11%||91.89%|
|Guarantor can provide deposit||27||47||74||36.49%||63.51%|
Source: Canstar, September 2016 Home Loans Star Ratings. Based on average variable interest rate and a loan of $350,000 taken over 25 years.