When you’re thinking about buying your first home, finding out that you should aim for a 20 percent deposit can seem really overwhelming.

The good news is that for some of the big non-bank lenders, a minimum deposit required on some products can be as little as five percent of the purchase price of the property.

However it’s always a good idea to have a deposit of 20 percent or more if possible, so let’s look at how to get there.

Set a target

Firstly work out what you can actually afford. Try out our online calculator to get an estimate of what your repayments could be. Once you get an idea of the sort of repayments you’d be able to make, you can decide on your target deposit.

Aim for a larger deposit

Be clear on the reasons you want to aim for a larger deposit. It can have several benefits:

1. You’ll have a smaller mortgage repayment amount 

2. You’ll save more money in the long run because you won’t need to borrow as much. This means you’ll pay less interest over the term of your loan

3. You won’t have any Lenders Mortgage Insurance (LMI) costs. This is an extra fee payable by you as a borrower if you have less than a 20 percent deposit saved

4. A larger deposit means you’re likely to get access to better interest rates – which will save you even more money.

Now that you’re clear on why you’d want a larger deposit, here are the two most important steps to set yourself up to grow that bigger deposit:

Track your spending then create a budget

When you track exactly where your money goes each month you can see where you could reduce spendings. You can use a tool like the Government’s ASIC MoneySmart TrackMySPEND app to work out where you’re spending at the moment.

Commit part of your monthly income straight into a savings account

‘Out of sight out of mind’ is a savings strategy that can work really well. Set a budget to cover daily expenses and bills – keep this in your regular account. Then transfer a regular set amount to your savings account. That way you help yourself to stick to your budget and your savings are safely out of temptations reach.

Wondering how much to save? The 50-20-30 rule recommends that ideally 20 per cent of your income should go towards savings. But – every person’s situation is different, and that might not work for you. The important thing is that a regular amount of savings whether it’s big or small, is put aside. It will eventually add up and help you to achieve your goals.

The importance of showing a lender you have made regular savings

Another motivation for saving into a separate savings account is that lenders usually want to see what they call ‘genuine’ savings. Basically they want to see that you can manage your money well.

If you have savings that are considered to be non-genuine (like an inheritance) you may still be able to use those funds. Put them into a savings account where they are left untouched for an amount of time – usually three months minimum.

If you’d like to know more about the deposit amount you need, including options on deposits for less than 20 percent, give us a call on 1300 736 780 or get a quote online.


Disclaimer: Original content source: Pepper Money. It is designed for publication through Accredited Brokers, to provide you with factual information only, and it is not intended to imply any recommendation about any financial product(s) or to constitute tax advice. If you need financial or tax advice you should consult a licensed financial or tax adviser. The information in the article is believed to be reliable at the time of distribution, but neither Pepper nor its accredited brokers warrant its completeness or accuracy. For information about whether a non-bank loan may be suitable for you, call us on 1300 736 780.