First home buyer deposit options

Your home deposit plays a critical role in your property journey as a first home buyer. It's not just about the upfront cost—it affects your future financial stability and the ease of your home buying experience. Working with an experienced Ryde mortgage broker, Parramatta mortgage broker, or specialist in your area, you can explore all available deposit options and find the best path forward. Understanding these options helps you enter the property market sooner with the right strategy for your circumstances.

Quick overview: Your deposit impacts borrowing capacity, loan terms, ongoing costs, and financial security. Multiple deposit options exist including personal savings, family gifts, government schemes, guarantor loans, and equity release. Understanding these options helps you enter the property market sooner with the right strategy for your circumstances in Gladesville, Baulkham Hills, Castle Hill, and throughout NSW.

Why your home deposit matters

Key insight: Your deposit size directly influences your borrowing power, interest rates, and overall financial position throughout your homeownership journey.

Your home deposit plays a critical role in your property journey. Here's why your deposit matters for your long-term financial success:

Impact on borrowing and loan terms

• Borrowing capacity: The size of your deposit directly impacts how much you can borrow and the types of properties you can afford.
• Loan terms: Larger deposits typically result in better interest rates and more flexible loan features, saving you money in the long term.
• Ongoing costs: A larger deposit can reduce or eliminate the need for Lenders Mortgage Insurance (LMI), lowering your monthly repayments.
• Financial discipline: A substantial deposit shows lenders that you're financially responsible, making you a more attractive borrower.
• Equity buffer: A larger deposit gives you immediate equity in your home, providing financial security if property values fluctuate.

At Buyvest, we guide you through understanding these factors, helping you find the best deposit option that aligns with your goals and ensures a smoother path to homeownership across all locations in NSW.

Building your deposit through savings

Saving strategy: Disciplined savings combined with smart strategies can help you accumulate your deposit faster than you might expect.

The most common way to accumulate a home deposit is through disciplined savings. Whilst it may seem like a long-term effort, with the right strategy, you can make the process easier and more achievable.

Proven deposit-building strategies

• Dedicated savings account: Set up a high-interest savings account exclusively for your home deposit to ensure your savings work harder for you.
• Automate your savings: Set up automatic transfers from your main account to your deposit account—consistency is key, and automation makes it effortless.
• Create a realistic budget: Track your income and expenses to find areas where you can cut back and allocate more towards your home deposit. Learn more about budgeting for first home buyers.
• Reduce discretionary spending: Identify non-essential expenses and redirect that money towards your deposit fund—every little bit adds up.
• Increase your income: Look for opportunities to earn extra income through additional employment, side gigs, or overtime.
• Utilise windfalls: Allocate bonuses, tax returns, or inheritance directly to your deposit fund to give it a significant boost.

The power of compound interest

Time is your friend when saving for a deposit. By starting early and allowing compound interest to work its magic, even small contributions can grow into a significant amount. Your money earns interest not only on your original deposits but also on the interest previously earned. The longer your savings grow, the greater the effect of compound interest.

For example, saving $500 monthly with a 3 per cent interest rate would result in $6,083 after one year, $32,323 after five years, and $69,871 after ten years. This example demonstrates how consistent saving, paired with compound interest, can significantly boost your deposit over time.

Gifted deposits from family members

Family support: Gifted deposits from family members can help you enter the property market without saving the full traditional deposit amount.

With property prices rising, many first home buyers are turning to family assistance to make homeownership more achievable. A gifted deposit from family members can be an essential option for those looking to enter the property market without saving the full traditional deposit amount.

How gifted deposits work

A gifted deposit involves a family member (often parents) providing funds to help you with your home deposit. The key benefit of a gifted deposit is that the funds are non-repayable—they are a gift, not a loan. This can make it easier for you to secure the home loan you need.

Here's what you should know about gifted deposits:

• Non-repayable funds: The money is given as a gift and does not need to be paid back.
• Documentation: You will need to provide documentation to confirm that the gift is non-repayable.
• Lender requirements: Whilst most lenders accept gifted deposits, their policies can vary.
• Genuine savings: Most lenders require that you have saved some portion of the deposit yourself, proving financial commitment.

Lender requirements for gifted deposits

When using a gifted deposit, lenders generally have a few key requirements to ensure everything is in order:

• Gift letter or statutory declaration: A signed letter confirming that the funds are a gift and not a loan.
• Gift transfer evidence: Proof that the gift has been transferred to your account (usually with a history of at least three months).
• No legal interest: Confirmation that the gift provider has no claim or legal interest in the property.

Because these requirements can vary between lenders, it's essential to work with a mortgage broker near you to ensure you are meeting all the necessary criteria and making the process as seamless as possible.

Legal considerations for family gifts

Before accepting a gifted deposit, it's important to consider potential implications and the legal status of the gift. Both you and the gift provider should ensure clear documentation to avoid any future misunderstandings, and clarify any informal involvement to make sure both parties are clear on whether the gift provider expects any involvement in property decisions.

Government schemes for first home buyers

Government support: Several government initiatives can help first home buyers enter the property market with smaller deposits and reduce overall costs.

There are several government initiatives designed to help first home buyers enter the property market with smaller deposits. These programmes can significantly ease the financial burden of buying your first home. Buyvest is here to help you understand these schemes and guide you through the application process.

Stamp duty concessions

Stamp duty concessions are a key benefit for first home buyers, even though they're not directly related to your deposit. Depending on where you're buying, you could benefit from full exemptions on properties valued up to a certain threshold, partial concessions for properties within specific price ranges, or state-specific programmes with different eligibility criteria. These savings can amount to significant amounts, making homeownership more affordable.

Home Guarantee Scheme (HGS)

The Home Guarantee Scheme (formerly known as the First Home Loan Deposit Scheme) allows eligible first home buyers to purchase a property with as little as a 5 per cent deposit. This scheme also enables buyers to avoid paying Lenders Mortgage Insurance (LMI), which can save you thousands of dollars.

Key benefits include lower deposit requirements (you can purchase with just a 5 per cent deposit), avoiding LMI to save money despite having a smaller deposit, and property price caps that vary depending on your location. Timing your application is essential, and understanding the benefits and risks is crucial.

Shared Equity Scheme

The Shared Equity Scheme helps eligible Australians buy a home with a smaller deposit. The government contributes up to 40 per cent for new homes or 30 per cent for existing ones.

Key benefits include a smaller deposit needed (as low as 2 per cent), government ownership of up to 40 per cent (new) or 30 per cent (existing), no Lenders Mortgage Insurance (LMI), and lower monthly repayments. At Buyvest, we're experts at guiding you through this process, making it easier to secure your home loan and maximise your benefits under the scheme.

First Home Owner Grant (FHOG)

The First Home Owner Grant (FHOG) is a government initiative that provides financial assistance to eligible first-time home buyers. The grant can significantly boost your deposit, making homeownership more achievable.

Key benefits include a one-time payment (typically around $10,000 in NSW and varying in each state), applicability to new homes or substantial renovations, and specific eligibility criteria and property value caps that vary from state to state. When combined with your savings, the FHOG can make a significant difference in reaching your home deposit goal.

First Home Super Saver Scheme (FHSSS)

The First Home Super Saver Scheme allows you to make voluntary contributions to your superannuation fund for the purpose of saving for your first home. These contributions, along with any associated earnings, can be withdrawn when you're ready to purchase your home.

Key benefits include tax advantages (saving in a concessional tax environment to accelerate your savings) and faster savings potential, particularly for higher income earners. At Buyvest, we can help you understand whether the FHSSS is a good fit for your situation and assist you in using it to your advantage.

Guarantor loans for first home buyers

Family assistance: Guarantor loans allow family members to help you enter the property market without directly providing cash.

Entering the property market can be challenging, especially when saving for a deposit feels overwhelming. A guarantor loan offers a unique solution, allowing family members to help you without directly providing cash. At Buyvest, we understand the importance of family support and can guide you through the process of securing a guarantor loan to achieve your homeownership goals.

How guarantor loans work

A guarantor loan allows a family member (typically a parent) to use their property or savings as security for your home loan. This additional security reduces the lender's risk, enabling you to borrow with a smaller deposit or even no deposit at all.

The guarantor doesn't provide cash upfront; instead, they offer their property as collateral against a portion of your loan. The guarantor is only responsible for the guaranteed portion, not the entire loan amount. As you build equity through repayments or property value increases, the guarantee can often be removed.

Benefits of guarantor loans

• Enter the market sooner: You can purchase a property without waiting years to save a large deposit.
• Avoid Lenders Mortgage Insurance: By using a guarantor, you may not need to pay LMI, saving thousands of dollars.
• Better loan terms: Access to more competitive interest rates and loan features.
• Build equity faster: Start building equity in your own home rather than paying rent.

Risks and considerations for both parties

Whilst guarantor loans offer significant benefits, it's important to understand the risks for both parties. For guarantors, they're legally responsible if you can't make repayments, their property is at risk if the loan defaults, and it may limit their own borrowing capacity. For borrowers, you need to maintain repayments to protect your guarantor, have limited flexibility if your guarantor wants to be released early, and must plan for potential relationship changes.

At Buyvest, we ensure both parties fully understand their obligations and can help structure the loan to minimise risks whilst maximising benefits.

Ready to explore your deposit options?

Let's discuss which deposit strategy works best for your situation. Our experienced mortgage brokers across Ryde, Parramatta, Baulkham Hills, and all NSW suburbs are ready to guide you.

Book consultation Call: 0426 002 202

Low deposit loans with Lenders Mortgage Insurance

Lower deposit option: LMI enables you to purchase property with deposits as low as 5 per cent, though it comes with additional costs to consider.

If you have a smaller deposit saved (typically between 5 per cent and 20 per cent), you can still purchase a property by paying Lenders Mortgage Insurance. LMI protects the lender if you default on your loan, allowing them to offer loans with lower deposits.

How Lenders Mortgage Insurance works

When your deposit is less than 20 per cent of the property value, lenders typically require you to pay LMI. This is a one-time premium that can be paid upfront or added to your loan amount. The cost varies based on your deposit size (smaller deposits mean higher LMI costs), loan amount, and the lender's assessment of risk.

Whilst LMI adds to your overall costs, it allows you to enter the property market sooner rather than waiting years to save a 20 per cent deposit. Use our property deposit calculator to understand how different deposit amounts affect your borrowing capacity.

Benefits and considerations

• Earlier market entry: Start building equity sooner rather than continuing to pay rent.
• Capture market growth: Benefit from potential property value increases whilst saving.
• More property options: Access a wider range of properties within your budget.

However, you should consider that LMI can add thousands to tens of thousands to your loan, if you capitalise the LMI premium, your total debt increases, and starting with less equity means less financial buffer. Working with an experienced mortgage broker can help you determine whether paying LMI now or waiting to save a larger deposit makes more financial sense for your situation.

Using equity from existing property

Equity leverage: If you already own property, you can use built-up equity as a deposit for your next purchase.

If you already own a property with significant equity built up, you may be able to use that equity as a deposit for your next property purchase. This strategy is common for investors and those upgrading to a new home.

How equity release works

Equity is the difference between your property's current value and what you owe on your mortgage. For example, if your property is worth $800,000 and you owe $400,000, you have $400,000 in equity. Lenders typically allow you to access up to 80 per cent of your property's value, minus what you owe.

You can access this equity through refinancing your existing loan to a higher amount, taking out a line of credit against your property, or using cross-collateralisation (using multiple properties as security). Understanding your Loan to Value Ratio (LVR) is essential when using equity from existing property.

Benefits and considerations

• No additional cash deposit needed: Use your existing property wealth to fund your next purchase.
• Potential tax benefits: If purchasing an investment property, the interest may be tax deductible.
• Leverages existing assets: This approach allows you to use the value already built up in your property.

However, using equity increases your overall debt, so you'll need to ensure you can manage the additional repayments, this option only works if you already own property with significant equity, and potentially complex arrangements involving refinancing or cross-collateralisation require careful planning.

Frequently asked questions

How much deposit do I need to buy my first home?

The amount of deposit you need varies depending on the option you choose. With the Home Guarantee Scheme, you may buy with as little as a 5 per cent deposit. The Shared Equity Scheme allows purchases with as little as a 2 per cent deposit. Guarantor loans might enable you to enter the market with minimal or no deposit. Low deposit loans with Lenders Mortgage Insurance allow purchases with 5 to 10 per cent deposits. Some state-based initiatives provide additional deposit assistance. The ideal deposit size depends on your financial situation and eligibility for different schemes.

Can I use multiple deposit sources together?

Yes, it's common for first home buyers to combine multiple deposit sources, such as personal savings plus a family gift, savings plus First Home Owner Grant, equity release plus savings, or guarantor support plus personal contribution. Be sure to check with your lender, as policies vary on combining deposit sources.

Do I need genuine savings for a home deposit?

Many lenders require genuine savings, typically funds saved over at least three months. However, some lenders have more flexible policies on genuine savings, certain government schemes may waive this requirement, guarantor loans often have more flexible approaches, and a consistent rent payment history can sometimes substitute for genuine savings. If genuine savings is an issue, a mortgage broker can help find lenders with more flexible requirements.

How long does it take to save a home deposit?

The time it takes to save a deposit depends on several factors including your income and expenses, your target property price, local market conditions, your saving rate and discipline, and whether you're utilising government schemes. On average, first home buyers take 4 to 5 years to save a 20 per cent deposit, but this can be shortened by using government schemes or other deposit options.

Can I use my superannuation for a home deposit?

Through the First Home Super Saver Scheme (FHSSS), you can make voluntary contributions to your superannuation (up to $15,000 per year, $50,000 in total), withdraw these contributions (plus associated earnings) for your first home deposit, and benefit from tax advantages within the superannuation system. This is different from accessing your existing super balance, and it's a way to save more effectively for your deposit.

What happens if property values fall after I buy with a small deposit?

If property values decline, you could end up in negative equity, where you owe more than your property is worth. Refinancing options may be limited until property values recover, and selling the property might result in a shortfall you would need to repay. To reduce this risk, research the property market carefully before buying, choose areas with long-term growth potential, consider holding the property through market cycles, and make additional repayments to build equity faster.

How does a guarantor arrangement get released?

A guarantor arrangement can be released when you've built enough equity through repayments or property value increases, and the Loan to Value Ratio (LVR) has reduced to 80 per cent or lower. The release process involves requesting a property valuation, applying to the lender for guarantor release, and refinancing to a standard loan without the guarantee.

What's better: paying LMI or waiting to save a 20 per cent deposit?

Whether to pay LMI or wait depends on your circumstances. Paying LMI may be better if property prices are rising rapidly, rent payments are high and similar to mortgage repayments, you have stable employment and income, or you qualify for time-sensitive first home buyer schemes. Waiting to save 20 per cent might be better if the property market is stable or declining, you're still building financial discipline, your employment or income is uncertain, or you're close to reaching the 20 per cent target. A financial adviser can help you weigh the pros and cons based on your situation.

Get expert guidance today

Don't navigate deposit options alone. Our experienced mortgage advisers are ready to help you explore all available pathways and find the best solution for your situation.

Book consultation Call: 0426 002 202

Related resources for first home buyers

• Budgeting guide for first home buyers – learn how to create a realistic budget and understand your borrowing capacity
• Home Guarantee Scheme – discover how this scheme lets first home buyers purchase with just 5 per cent deposit and no LMI
• Lenders Mortgage Insurance guide – understand how LMI works and explore strategies to minimise or eliminate this cost
• Pre-approval to home ownership – follow the complete journey from mortgage pre-approval to settlement
• Pathways to home ownership – navigate multiple pathways to achieve your homeownership goals
• Mortgage repayment calculator – work out your repayments and compare different deposit scenarios

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Important stuff:

Please note that the views and opinions expressed in this post are general information only, and this is not financial advice.

Any advice and information is provided by Buyvest Pty Ltd ABN 91 684 841 496, Australia Credit Licence No. 567392 and is general in nature, for educational purposes only and is not intended to constitute specialist or personal advice. This website has been prepared without considering your objectives, financial situation or needs. Therefore, consider the appropriateness of the advice for your situation and needs before taking any action. It should not be relied upon to enter into any legal or financial commitments. Specific investment advice should be obtained from a suitably qualified professional before adopting any investment strategy. If any financial product has been mentioned, you should obtain and read a copy of the relevant Product Disclosure Statement and consider the information contained within that Statement concerning your circumstances before deciding whether to acquire the product. You can obtain a copy of the PDS by emailing hello@buyvest.com.au. If you want to change your financial circumstances, such as applying for a loan, all loan applications are subject to credit approval.

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