How much do I need for my mortgage deposit?
Buying your home can be a big step. There is a lot of money involved, and your home will probably be the biggest asset you will ever own or at least that you have owned to date. So you probably don’t want to stuff it up before you have even begun. Part of purchasing a property is knowing how much you can borrow and how much money you need to have saved up for your mortgage deposit. This is especially important for first home buyers. If you already own a property and are selling it and buying another you can use funds from the sale in the purchase of your new property.
How much can I borrow?
Knowing how much you can afford to spend on your new home depends on both:
• how much deposit you need to have saved up; and
• if you can afford to pay the repayments.
It is important, if not essential, to know how much you can borrow before you start to seriously look at purchasing a property.
This article is going to focus on your mortgage deposit and settlement costs. This will hopefully provide you the information to know to settle the purchase of your home to the point where you can pick up the keys and move in. Sometimes people think that they just need the bank mortgage deposit and forget about the other costs. If you are borrowing 95% of the property value (95% LVR), this means that you still need the 5% of the bank deposit plus the other settlement cost. A description of these cost and an indication of the amount is given here.
You will need to have funds available for your:
• bank deposit for the property;
• settlement cost or ‘funds to complete’; and
• any other costs.
The bank mortgage deposit
Gone are the days when you could walk into a bank without any mortgage deposit and finance the entire property purchase price (unless you have a willing guarantor and use a guarantor home loan). After the Global Financial Crisis banks and regulators are more wary. Banks and other lenders will require that the borrower, you have a mortgage deposit. Where your deposit is less than 80% of the value of the property, in most cases you will also need to pay for Lenders Mortgage Insurance. In most cases the money to pay for Lenders Mortgage Insurance can be added to the loan where the loan amount is up to 95% of the value of the property, known as the Loan to Value Ratio or LVR. Some lenders allow loan amount including the LMI up to 97% of the value of the property (LVR).
Stamp duty needs to be paid on property transfers in Australia. It is generally the largest cost and depending on the State or Territory where you are buying the property can cost less than 2% to greater than 4%.
Stamp duty is a State and Territory tax and the rates vary depending on which State or Territory that the property you are purchasing is located. Each jurisdiction has its own formula for calculating the amount of Stamp duty that needs to be paid.
Examples of the cost of Stamp duty for the transfer of an owner occupier property (without being a first home buyer or other concessions) is as follows:
|Property price||Stamp duty||% Stamp duty|
|ACT||$ 500,000||$ 15,800||3.2|
|Vic||$ 500,000||$ 21,970||4.4|
|NSW||$ 500,000||$ 17,900||3.6|
|QLD||$ 500,000||$ 8,750||1.8|
|TAS||$ 500,000||$ 18,248||3.6|
|SA||$ 500,000||$ 21,330||4.3|
|NT||$ 500,000||$ 16,929||3.4|
|WA||$ 500,000||$ 17,765||3.6|
See more information about stamp duty:
Mortgage stamp duty
A government tax on registering a mortgage.
Property transfer fee
Property search and transfer fees for changing the title of the property from the vendors name to your name.
These usually cost several hundred dollars.
Release and registration fees
Release fees are charged to release the vendors mortgage from the title of your new property (if they have a mortgage) and registration fees are charged to register your mortgage against the title of the property.
These usually cost several hundred dollars.
Bank fees and charges
Lenders mortgage insurance
For loans greater than 80% LVR most lenders will require that you have Lenders mortgage insurance. This may be several thousand dollars but may be borrowed as part of the loan.
Application / establishment fee
A fee charged by the bank or other lender. Some lenders do not charge this other lenders can charge several hundred dollars.
This goes towards the bank paying an independent valuer to assess the value of the property being used as security (what the lender can repossess and sell to cover any losses in the event that you fail to repay the loan) for the loan. A valuation price is likely to be different from the price that a real estate agent will quote. A valuation is the price that the lender should be able to get on a quick sale (within 30 days of being on the market) of the property (the lender is not likely to hold off wait for a better price) and takes into account any risks on selling the property. Some lenders will provide the valuation for free.
Security admin fee
For registering the property as security against the home loan.
Though not really part of the cost of purchase, these other costs are for things that are often needed but often forgotten.
Legal and conveyancing fees
Before purchasing a property you should always read the contract including the building and pest inspection and if you are ready to buy that property also get it checked by a lawyer/conveyancer. The conveyancer will also calculate stamp duty, rates, land tax, water bills and other ‘adjustments’ such as those listed here, attend the settlement and make sure that the titles are correctly transferred to you.
Rates are charged to property owners to provide municipal and other services. Rates are calculated based on the unimproved land value (not the property purchase price or the bank valuation). At settlement you will need to pay the proportion of the amount of the rates for the remaining days of the year. Your conveyancer will calculate exactly how much you need to pay and organise the payment for you.
Building and pest inspection
Depending on which State or Territory you are in you may want to get a building and/or pest inspection prior to purchasing the property. In the ACT however, the vendor (seller) must obtain building and pest inspections that will be provided to the potential buyer with the contract of sale, then once the property in purchased the buyer pays the cost of the building and pest inspections.
For property with a building on it (ie. Not just land), lenders will generally require that you take out home insurance (even if not required it is probably a good idea). This is because if the property loses value (for example because the house burns down) then the bank or other lender has a greater risk that it will not be able to recover its cost if you fail to pay the loan and they need to repossess the property.
Something people overlook when thinking about purchasing a property. You may need to hire removalists or a truck, or maybe you have some burley mates and a Ute. This may not be very expensive if you Do It Yourself or are not going far.