House deposit QLD [All your questions answered]

This is the ultimate guide to a House Deposit when buying in Queensland.

You’re going to learn EXACTLY how much deposit you are going to need to buy a place in 2019.

So if you want to:

• Know exactly how much house deposit is needed in 2019
• Improve your chances of getting a loan approved
• And get into your first home faster

Then you’ll love this new guide.

Let’s jump in.

• 1. How Much Do You Need to Buy a House in 2019
• 2. How to Reduce the House Deposit Required
• 3. What kind of income do you need to minimise deposit
• 4. How to Determine if You Should Pay LMI
• 5. How much deposit do I need to build a house
• 6. Using the First Home Owners Grant as a House Deposit
• 7. How to Avoid LMI on your House Deposit
• 8. Tips to Buying with a low house deposit in QLD

1. How Much Do You Need to Buy a House in 2019

This is the first question that first home buyers ask us, and it should be straightforward to work out… but often isn’t.

While you might have read some banks will do 95% loans, lots of people assume this means you only need a 5% deposit which is not correct.

There are other costs that need to be factored in there, which is a common mistake of many first home buyers so you actually need closer to 8% deposit.

Lots of Banks advertise a maximum LVR 95%, this amount includes LMI. So, In other words, they are saying a maximum loan amount of 92% PLUS 3% LMI to get to 95%

How Much Deposit When Buying An Existing Home

When you are buying an existing home in Queensland, you will not receive the $15,000 first homeowners grant so you will need a little bit more in savings. Figures are correct as at 4th September 2019.

How Much Deposit when Buying a New Home

What if you are buying a brand new first home and qualify for the Queensland First Home owners grant?

Let’s go through an example together, with figures based on buying a home in 2019.

How To Buy With No Deposit

No deposit loans are possible, but not like in the old days.

In this situation, you’d need to set up a guarantor to secure your loan.

This is a great way to help speed up getting into the property market.

For a detailed outline about guarantor loans, check this article here.

What is a guarantor?

A guarantor is a family member that will use their house or investment property as security against your new home loan. In order for the property to be used it must have equity in it.

The bank will take security over a section of their property (the percentage they approve) in place of your deposit. Having a guarantor will allow you to borrow up to 105% of the purchase price.

What are the guarantor loan requirements?

• ✅ Needs to be from your immediate family, so your parents, siblings or grandparents. Some banks will also allow de facto partners, or in some cases uncles or aunts depending on their relationship with you.
• ✅ Guarantors property needs to be in Australia, the banks will not accept any property located overseas and the guarantor needs to be an Australian or New Zealand Citizen.
• ✅ There needs to be enough equity in their home, typically the guarantor will need to Lowe less than 80% of the property value on their home loan. We’ll go into this more shortly.
• ✅ Your guarantor needs to be currently working, a lot of banks will not allow a security guarantor from a retired or elderly guarantor. There are some exceptions, we have some banks that will accept self-funded retirees provided they get legal advice and have a reasonable exit strategy.
• ✅ You need to be over 18 years old to apply for guarantor home loan

Unacceptable guarantors include:

• ⛔️ Friends
• ⛔️ Work associates
• ⛔️ Previous spouses, or de facto partners
• ⛔️ Unrelated people who do not have an immediate relationship with you

Read More: How to remove a guarantor from a mortgage 

What if I have absolutely no genuine savings?

While you are allowed to borrow over 100% of the purchase price, in some cases lenders will still want to see at least 5% of the purchase price in genuine savings. That is, money that you have on the side in order to prove that you have some fall back money.

The good news is, if you’re currently paying rent, this can be used as genuine savings too!

You can talk to us today about which lenders will not require genuine savings.

I’ve owned a property before, can I still get a guarantor?

Most commonly, a guarantor is used for first home buyers. And most backs will only allow this.

However there are some lenders that will allow second home buyers to get a guarantor. Yet usually the outlook is that they should already have a strong financial base in order to buy a second property. Yet in the case of those who have been sick or have been through a divorce, then some lenders will review it case by case.

Will having a guarantor affect my borrowing capacity?

Even with a guarantor, your borrowing capacity will still be reviewed and approved in the same way. Your current income will be looked at as well as any debt, credit carbs and liabilities that you have. As a general idea, banks will lend you around 5 to 6 times your income. So if you are earning $50,000 you might be able to borrow up to $300,000.

For a more specific example, we have shown how much a single person could borrow if they were earning $65,000 per year and had no credit cards, AfterPay or personal loans.

Read More: Guarantor Home Loans ultimate guide

Other Deposit Scenarios in QLD

• 5% deposit: This is the minimum deposit possible to buy a house in Queensland.
• 8% deposit: This is about the standard and recommended minimum to help free you up a bit. You’ll get a better interest rate too.
• 10% deposit: This is a great base to open up your possibility to work with nearly every type of lender. In some situations, lenders won’t allow higher than 90% loan to value ratio, which means that having a 10% deposit will let you consider their rates. Your lender’s mortgage insurance rate will also be cheaper too.
• 15% deposit: The higher, the better, but at this point, you can also use non-genuine savings to help you get to this figure. So maybe your parents can gift you money for the deposit to help bump it up a little?
• 20% deposit: This is what traditionally, is the recommended deposit and a great place to be in if you can afford it. With a 20% deposit, you will be able to get a better interest rate, and you won’t need to pay lenders mortgage insurance.

Read More: Use the Deposit Calculator 

2. How to Reduce the House Deposit Required

These days unfortunately 5% deposit won’t cut the mustard.

You’ll need a minimum of 8% in savings unless you’re buying a brand new place.

(Like we covered in chapter 1).

Here are a few practical examples

You can have a play with our deposit calculator to see what is possible.

Read More: Use the Deposit Calculator 

3. What kind of income do you need to minimise deposit

When it comes to income, it depends on the size of the loan you’re taking out.

If you’re sitting at 95% loan to value ratio, you’ll find that lenders are much more conservative when they assess you.

In this case, a higher income will help you get across the line and make it easier for you.

4. How to Determine if You Should Pay LMI

Lenders mortgage insurance is protection for the lender, so if in any case, a borrower can’t pay their loan back, this is their insurance.

Those with a low deposit will be required to pay LMI, which is anything under a 20% deposit.

Why?

These borrowers fall into a higher risk category and as a result, can create more complications for lenders should they default on their loan repayments.

But how can you avoid LMI?

Lenders mortgage insurance can be avoided by having a larger deposit, which is 20% or more of the property value, or by having a guarantor.

Wait, what does a guarantor do again?

A guarantor instead secures your mortgage with their property. So if the buyer can’t pay back their loan, it will fall onto the guarantor and not the lender.

The issue is that a guarantor takes on a lot of responsibility which can put them at risk too.

5. How much deposit do I need to build a house

Does a deposit for building a house differ from buying one?

In this situation, you’d need to get a construction loan which differs from a standard home loan. A construction loan is paid off in stages.

The deposit still works in the same way, and the minimum deposit between 5 to 8% is still required. You’ll need to work out the cost of the land and the build so that you can budget accordingly and take out the right size loan.

In Queensland, because this is a new build, first home buyers will be eligible for the grant too.

The deposit amount will be confirmed, and from there, your solicitor or conveyancer will finalise the contract with the progress payments. Remember that your loan will need to include extra costs like legal fees and stamp duty that you may not have factored in.

6. Using the First Home Owners Grant as a House Deposit

The First Home Buyers Grant in Queensland can be used as all or part of your deposit for brand new properties, buying off the plan or significant renovations that have substantially changed the property

It is best not to solely rely on this and consider it as more of a bonus. Why? Because depending on the type of property that you’re buying or building, the grant will be paid at different times.

To be eligible for the First Home Owners Grant

There are a few conditions, including:

• You must be over 18
• Australia citizen or permanent resident, or applying with someone who is
• You must not have previously received the grant
• Must be buying your first home

There are also restrictions on the types of properties you can buy

The property you are buying must be brand new, or being built and valued at under $750,000 (land included). New dwellings include houses, units, duplex, townhouse, a granny flat that has not been occupied as a place of residence.

The grant may be used for homes that have undergone substantial renovations, or homes that have been moved onto a new site and not yet occupied like kit homes.

You will need to move into the new home within one year of settlement and live there continuously for six months.

You are also unable to rent out a room until you’ve lived in the property for at least a year. So if you were relying on rental income from other tenants, park that thought for a little while.

Requirements for the grant

Take the full eligibility test here to see if you’re eligible.

Read More: First Home Owners Grant QLD

7. How to Avoid LMI on your House Deposit 

When you need to pay LMI is determined by your lender. (Remember its an insurance that protects the banks)

In some circumstances, the cost will be paid as a lump sum up front, while other lenders will allow it to be added onto your home loan. In the case of the latter, you will then pay interest on the LMI too.

As a guide for a $500,000 home loan that you’ve saved a $50,000 deposit on, LMI could cost over $10,000. Your loan to value ratio will be looked at, and the higher your loan is, the more LMI you will have to pay.

Something to remember

If you choose to refinance in the coming years, unfortunately, LMI is not transferable. So if your loan to value ratio is still higher than 80%, you may need to pay LMI again with your new lender.

Understanding how a lender calculates LMI is essential as well as being aware of estimated costs so that you can weigh up what to do.

Many first home buyers contemplate whether it is best to wait until they have a higher deposit or to buy earlier and pay LMI.

We get asked which option is better. But what it comes down to are your personal goals.

Would you prefer to get into the property market sooner, or wait and be more financially secure?

There’s no right answer because it depends on your goals and requirements.

8. Tips to Buying with a Low House Deposit in QLD

There are a few other things that can help make a low house deposit look more appealing.

Clear Credit History

Credit history is important, but we also deal with a lot of people with bad credit history.

And in this situation, it’s about knowing the correct lender that will suit their needs.

Your credit file will be reviewed, and any outstanding debt should be consolidated and paid down to get rid of it.

You’ll need to make sure that the rest of your outstanding repayments are paid on time.

Lower Personal Debt

Depending on the amount of debt you have, we’ll look at a plan around how exactly to consolidate it. This means paying off as much as possible and trying to get rid of it before your loan goes through.

People who have high amounts of debt outstanding on their credit card will often struggle to get their loan approved.

As a general figure, if you have more than 7% of the purchase price of debt, then this will likely be an issue for you to go ahead.

At this point, we will look at setting you up with a clear budget plan and implementing strategies to reduce as much debt as possible.

Credit cards, personal loans and any extra requests at this time will be reviewed, and a strategy to reduce this debt will be set up.

Related articles

• https://www.huntergalloway.com.au/deposit-calculator/
• https://www.huntergalloway.com.au/buying-a-house-with-inheritance/