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How much do I need for a deposit: will 5% do?

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Does saving for a home loan mean giving up your daily takeaway coffee habit?

You're saving for a property and have heard all the stories about needing upward of 20% deposit before any lender will take your loan application seriously. Such a large deposit may seem too hard to save, especially if it involves sacrificing your daily coffee intake!

But now for the good news.

Despite a tightening on lending, it’s still possible to find lenders who are offering loans that require only a 5% deposit.

Expect to pay LMI

Considering you're borrowing 95% of the property's value, you will be required to pay Lenders Mortgage Insurance (LMI). This one-off payment is requested as an extra level of protection for the lender. It assists the lender to recover any losses should you be unable to repay your home loan.

The cost of the insurance will vary depending on the size of your deposit and the value of the property. LMI is paid upon funding of your loan and added to the total loan amount. It becomes payable over the duration of the loan period and therefore incurs interest.

If you choose to access a lower deposit home loan needing LMI, we'll calculate the figures and talk you through the process of applying this insurance to your home loan.

Check the lending criteria

Before agreeing to a loan of this size, lenders will want to know your financial position is strong enough to afford this level of debt. They will want to see stable employment history, genuine savings and an excellent credit score. If you have too many debts, such as multiple credit cards, car loan or personal loan, this may affect your chances of qualifying.

Chat to us about the lending criteria in advance of putting in an application as we can tell whether you’re likely to be approved. Applying for too many loans in a short space of time and getting knocked back is detrimental to your credit score.

Less deposit, more interest

Be mindful that the higher your deposit, the less you'll need to repay over the life of the loan. Therefore, the less interest you'll incur.

Taking the time to accumulate a more substantial deposit before your property purchase could prove less expensive in the long run.

Where to find low deposit lenders

The secret to a perfect loan is identifying the one that's your ideal fit. At Yellow Brick Road, we'll work closely with you to determine which low deposit options suit your current financial position and home ownership aspirations.


**The information on this article contains general information and does not take into account your personal objectives, financial situation or needs. If you require further information don’t hesitate to contact the branch directly.

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