Many people think they can't buy a home because they have difficulty building up the tens of thousands of dollars in savings necessary to make a large deposit. However, this is often a misconception: While a larger deposit is certainly a good idea more often than not, it isn't always a default requirement from lenders.
As such, you should look at your options and educate yourself about the homebuying process so that you know exactly what you should prepare for.
First and foremost, you should understand that lenders will typically let you borrow as much as 95% of the property's value on your mortgage, according to Sun Corp. This means that although you have likely heard lenders prefer deposits of 20% or more, they will allow you to make one of as little as 5%. Of course, that means you have to pay the interest on that 95%, and so you have to crunch the numbers to see if that works for you.
However, if you make a deposit of less than 20%, you will also be required to pay for Lenders Mortgage Insurance until such time as you have paid off 20% of the property's value. That adds an extra layer of cost to making a small deposit, in addition to the greater accrual of interest. Over time, you will likely pay significantly more on your mortgage than you might realise, even if homeownership makes sense for you in other ways.
Of course, everyone's financial situation is different. National Australia Bank noted that depending on what your monthly expenditures look like, it may still make sense to take on the extra costs associated with making a smaller deposit. Depending on the price of your prospective property versus what you pay for rent, commuting costs and how much you can save in the meantime, you might still end up saving money if your mortgage payments are slightly higher, thanks to that lower deposit.
Especially if you are thinking of buying a home for the first time, it's vital to have a real estate professional by your side throughout the process. At Ray White Surfers Paradise, we can walk you through every step of the process and help ensure you make the best possible decisions about your purchase. Get in touch with us today to learn more about what we can do for you.