How Much Money Do I Need to Save for a Deposit as a First Home Buyer

Saving a first home buyer deposit is one of the biggest milestones on the journey to buying your first property. Buying your first home or property is one of the most exhilarating and terrifying steps a person can take in their adult life.

Much of this anticipation comes down to one of the first gatekeepers of the home loan process, which is saving for a NSW house deposit. But with the continuous rise of home prices, is it really possible to save up enough for a home deposit in today’s economy?

The good news is that first-home buyers have a lot of government schemes they can benefit from to help them on their home-buying journey. In this article, we’ll go over in detail how much you need to save up for a house deposit for a first time buyer, explain terminology such as LMI’s, and go over what government schemes you can use as a first home buyer.

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Saving for a House Deposit for a First Time Buyer

The general percentage you’ve likely heard is that you need to save up 20% of the total value of a property before you’re able to apply for a loan to buy it.

While this isn’t strictly the only amount you need to save (as we’ll get to later), it’s considered the general amount you need to save if you want to avoid paying LMI and transfer duty (what you’ve likely commonly heard as stamp duty).

However, there are ways to bypass this hard 20% rule. Let’s explain what LMI is very quickly.

What is LMI

An LMI stands for Lenders Mortgage Insurance. This is a one-time insurance fee you pay to the lender if you have a deposit that is less than 20% of the value of the property you’re hoping to buy. This fee is to protect the lender in case the borrower has to default on a loan and can’t continue to pay it back.

The size of your first home buyer deposit will often determine whether you need to pay Lenders Mortgage Insurance (LMI).

However, when you apply for the First Home Guarantee Scheme, you can completely waive your LMI as the government can underwrite your home loan, acting as your guarantor, meaning you don’t have to pay the fee.

How to Apply for a First Home Guarantee Scheme

If you are a first home buyer and are eligible under other qualifications, you can sign up for the Home Guarantee Scheme (HGS).

The biggest benefit of gaining an HGS is that it supports home buyers who have as low as a 5% deposit of the total purchase price of the property, and also completely waives any transfer fees/stamp duty fees you have to pay.

This scheme is fantastic at letting prospective homeowners get a leg up in the market.

The eligibility criteria for the scheme are:

Be at least 18 years of age
Move into the property within the first six months of owning it and continue to live there for the length of your home loan
Have Australian citizenship or be a permanent resident
Be a first home buyer or provide proof you have not owned or held interest in property in Australia for at least 10 consecutive years
Singles have to have a taxable income of less than $125,000 AUD and couples a combined income of $200,000AUD than the previous financial year.

You can also view the latest eligibility requirements on the Housing Australia website.

If you fulfill all of these requirements, you are eligible for a First Home Guarantee Scheme. Note that there are specific rules in states if you’re aiming to get a NSW house deposit.

It’s important to note that this scheme is capped out at properties worth more than $900,000 in the Sydney area, and $750,000 throughout the rest of NSW.

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First Home Guarantee Scheme in Action

Let’s make an example.

Let’s say you wanted to purchase an existing NSW property worth $800,000. If you could only afford a 5% deposit of $40,000, you would have to pay LMI fee.

However, if you successfully earn one of the 35,000 annual spots available for the HGS scheme, the Australian government would essentially step in as your guarantor and save you from having to pay for LMI and transfer duty, saving you thousands of dollars.

How to Quickly Save up for a House Deposit

If you’re in a hurry to save up for a home deposit, there are a variety of steps you can take. The main ones are keeping a firm eye on your finances.

Tracking your spending and budgeting to save money is an important first step to accruing the necessary funds. Taking advantage of rewards services and cashback rewards is also a good way of saving money over time.

Finally, having a dedicated high-interest savings account is also paramount to reaching a financial goal. Using all of these tactics in concert will guarantee that you’ll reach your saving goals and earn your deposit.

Reach Your Home Buying Dreams with In Financial

At In Financial Services, we have helped individuals from all sorts of backgrounds leverage government schemes and use smart budgeting tactics to reach their goals.

With over 25 years in the mortgage brokerage industry, and our access to a variety of different lenders, our brokers give all sorts of advice and admin assistance to help our clients get in touch with the lenders and government schemes that are best for them.

Interested? Get in touch with us today so that we may help you.