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First Home Buyer Deposit and Income Considerations

Congratulations on deciding to embark on the exciting journey of becoming a first home buyer! While your decision should be celebrated, there are a few more things to learn.

Navigating the world of home buying can feel overwhelming because there are a lot of factors to consider. But, we’re here to help you understand the very first two things that you need to learn about – deposit and income. By the end of this guide, you’ll have a clearer picture of what to expect as a first-time home buyer.

First Home Buyer Deposit: Everything You Need to Know

First Home Buyer Deposit

A home deposit is like an upfront down payment you make when you’re buying a house. It’s the chunk of money you need to contribute towards the total price of the property. Think of it as a sign of commitment to your dream home. 

When you find a house you want to buy, the seller expects you to put some of your own money on the table as a deposit. It’s usually a percentage of the house’s total cost, like 10%. For example, if the house you’re eyeing costs $500,000, you’ll typically need to save up $50,000 as your deposit.

However, the amount of deposit required will vary depending on the value of the property, the lenders’ requirements, and the buyers’ financial circumstances. The amount of the deposit can also change depending on the following factors:

  • Lenders Mortgage Insurance (LMI)
  • Stamp duty 
  • Available grants

As a rule of thumb, you can refer to the following percentages:

  • 5% as a minimum for deposit
  • 3% for mortgage insurance
  • Up to 5% to cover any additional costs (this range will depend on what benefits are available).

You should also remember that the bigger your deposit, the better it is for you in the long run. In most cases, the ideal percentage you should save up for is 20% of the total cost of the home. It can help you secure a loan more easily and might even save you from extra costs like Lenders Mortgage Insurance (LMI).

What is Lenders Mortgage Insurance (LMI)?

Lenders Mortgage Insurance (LMI) is crucial for ever first home buyer to know about and understand. Also known as just mortgage insurance, it’s like a safety net for lenders when you’re buying a home with a deposit of less than 20% of the property’s value. It’s there to give the lender some extra peace of mind in case you can’t repay your loan.

If you’re buying a house with a smaller deposit, like 10% for example, the lender might ask you to get LMI. It helps protect the lender if you can’t make your mortgage payments and they need to sell the property.

While LMI adds an extra cost, it can help you get a home loan with a smaller deposit. Remember, if possible, aim for a 20% deposit to avoid paying for mortgage insurance altogether.

If you, or a first home buyer you know, needs more specific details about LMI and how it applies to your situation, it’s best to talk to your lender or a mortgage broker. They can guide you through the process and answer any questions you may have about buying your first home.

Understanding Income

When you’re a first home buyer looking for that perfect property, your income plays an important role. Lenders want to make sure you have enough money coming in to comfortably repay your mortgage. 

Lenders will also look at your income to figure out how much they’re willing to lend you. They will consider your expenses, like bills and debts, to make sure you can handle the mortgage repayments without any money meltdowns.

A rough rule to use is that lenders will typically lend you around 30-35% of your gross income towards a mortgage repayment. But, as mentioned, the percentage can be affected by:

  • Your budget 
  • What expenses you are carrying 
  • Any loans you may have (car loans, credit cards, interest-free deals, or HECS / HELP debt)

It’s important to be honest about your income and expenses when talking to lenders. They’re here to help you find a loan that fits your financial situation.

Remember, it’s all about finding that balance between how much you earn and how much you can comfortably afford. So, be open about your income, and together with the lender, you can work out the best borrowing options for buying your first home.

Grants to help with First-Time Home Buyer Deposits

If you’re a first home buyer, the government offers special grants to help make it easier and more affordable for you. 

First Home Guarantee (FHBG)

One of the main first home buyer grants is called the First Home Guarantee (FHBG). FHBG is a payment given to first-time buyers to help with the costs of buying a new home or specific residential property. For more information about how to apply and eligibility, please visit the National Housing Finance and Investment Corp (NHFIC) First Home Guarantee (FHBG) page.

First Home Loan Deposit Scheme (FHLDS)

Another helpful program is the First Home Loan Deposit Scheme (FHLDS). It allows you to buy a home with a smaller house deposit, as low as 5%, without having to pay for extra insurance. To be eligible, first-home buyers must meet certain criteria. Eligibility criteria includes income thresholds, property price limits, and the requirement that the property is owner-occupied. 

Other Concessions or Exemptions

You might also be eligible for stamp duty concessions or exemptions. Stamp duty is a tax you usually pay when buying a property, but some states or territories give first-time buyers a discount or even waive it altogether.

Remember, each grant has its own rules and application process, so make sure to do some research or talk to professionals who can guide you through the details.

Tips on How to Save for a First Home Buyer Deposit

Saving for a deposit may take time and effort, but it’s worth it. With determination and a solid plan, you can make it happen! Here are some tips to help you save and reach your goal for a home deposit faster:

1) Set a Budget

Start by creating a budget that outlines your income and expenses. Track your spending and identify areas where you can cut back. Small changes like cooking at home instead of eating out or reducing unnecessary subscriptions can add up to significant savings.

2) Save Consistently

Make saving a habit by setting aside a portion of your income each payday. Treat it like a regular bill that you must pay yourself. Even small amounts can accumulate over time, so don’t underestimate the power of consistent saving.

3) Reduce Unnecessary Expenses

Take a close look at your spending habits and identify areas where you can make adjustments. Cut back on non-essential items like eating out, entertainment, or shopping for things you don’t really need. Redirect those saved funds towards your home deposit.

4) Save Windfalls and Bonuses

Whenever you receive unexpected income, like tax refunds or work bonuses, resist the temptation to splurge. Instead, put these windfalls directly into your home deposit savings.

5) Seek Professional Advice

Consider speaking with a financial advisor or mortgage broker. They can provide personalized guidance on saving strategies, investment options, and financial planning tailored to your specific circumstances.

Remember, saving for a home deposit takes time and discipline, but don’t get discouraged. Overcome challenges, celebrate small milestones along the way, and keep your eyes on the ultimate prize of owning your own home. 

So what now?

We hope this guide has provided you with valuable insights into deposits and income for first-time home buyers. Remember, while the process may seem daunting, it’s also an exciting opportunity to find a place you can truly call your own.

Embarking on the journey of buying your first home is exciting yet can be financially challenging. However, you don’t have to face it alone. Help My Wealth is here to lend a hand and simplify your path to homeownership. We can help you build a plan to effectively make the most of your resources. You’ll be able to gain a better understanding of your income and expenses, create a realistic budget, and stay on track toward your goal.

house deposit, first home buyer

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First Home Buyer Deposit and Income Considerations

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