How much cash do I need to buy my first home in 2019?
When you’re thinking about buying a home, budget considerations are obviously at the top of your mind. At AFM, one of the first questions customers ask us is, ‘How much cash do I need to buy my first home?’ (That, along with, ‘how much can I borrow?’)
Right now, there are a number of factors drawing new home buyers to the market, like the First Home Owner Grant (FHOG), concessions to stamp duty and historically low interest rates. However, lending criteria have tightened in recent years and borrowers are typically required to come up with a deposit of around 5% to purchase a house. Then, there are the less obvious costs to consider. Even with the concessions and grants available to first home buyers, you will need about 8% of the purchase price to make sure everything is covered.
Case study: Purchasing a home in Queensland
Note: this is an estimate of how much cash might be needed to purchase a new home with the bare minimum deposit, assuming no other discounts and normal lending criteria.
Laura and Mark are buying a house in Queensland for $400,000. They have a 5% deposit which is $20,000. Because their Loan to Value Ratio (LVR) is more than 80% they will be required to pay Lender’s Mortgage Insurance (LMI) which in this case is $11,448. So, the total amount of cash they will need is $31,488.
They receive a First Home Owner Grant of $15,000, and that added to their $20,000 deposit means they have $35,000 cash available to them. Once they have paid the LMI and deposit they will have $3,512 left to go towards associated costs, such as conveyancing, government and lender’s fees.
It is likely they will need to show that the entire $20,000 (5% deposit) has come from genuine savings to satisfy their lender’s lending criteria.
In this instance, Laura and Mark have opted to pay for their LMI outright so that it was not capitalised to their loan. Where LMI is not paid upfront it will be capitalised to the loan and the total loan cannot exceed 95%. This is why deposits of more than 5% are required in some instances. Paying for the LMI outright will increase your upfront costs, but will save you in the long run as you won’t be paying interest on it.
Figures are based on a purchase of a newly completed home in Queensland with the Genworth mortgage insurance premium capitalised. This is not financial advice and the figures above do not take into account any one loan product, and are subject to credit policy and credit lending criteria. Other products are available.
As you can see from the above case study, home buyers will need to have enough cash to cover 5% deposit, LMI and associated costs. The FHOG and stamp duty concessions vary across the states and territories, so make sure you know what grant and how much you are eligible for.
AFM offers a variety of solutions for clients with low deposits and our lending specialists will be happy to help you determine how much you need to save to purchase your first home, so give us a call on 134AFM to discuss.