7 min read Looking to buy a property in Queensland? One of the first steps is saving up for a house deposit. But how much do you need? Where do you start? And what are the different options available? Don’t worry; we’ve got you covered! In this article, we’ll answer all your burning questions about house deposits in QLD.
You’re going to learn EXACTLY how much deposit you will need to buy a place in 2023.
So if you want to:
- Know exactly how much house deposit is needed in 2023
- Improve your chances of getting a loan approved
- And get into your first home faster
Then you’ll love this new guide.
Let’s dive in.
Table of Contents
1. How Much Do You Need To Buy A House In 2023
This is the first question that many first-home buyers ask us. It should be straightforward to work out… but often isn’t.
While you might have read that some banks will do 95% loans, lots of people assume this means you only need a 5% deposit—which is a common mistake of many first home buyers. There are other costs that need to be factored in there, so you actually need closer to an 8% deposit.
How Much Deposit When Buying An Existing Home
When buying an existing home in Queensland, you will not receive the $15,000 first home owners grant, so you will need a little bit more in savings. Let’s look at some examples. Figures are correct as at 18th May 2023.
House Deposit required | Bank Jargon | Who Qualifies for this? | Example on $500,000 purchase in QLD for a first home buyer |
8-10% of the purchase price | Maximum LVR 95%. This means including LMI, so a 92% Loan + 3% LMI = 95% |
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Deposit needed to cover transfer duty, and other settlement costs $42,511 |
7-9% of the purchase price | Maximum LVR 97% This means including LMI, so a 94% Loan + 3% LMI = 97% |
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Deposit needed to cover transfer duty, and other settlement costs $29,077 |
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 2023.
House Deposit required | Bank Jargon | Who Qualifies for this? | Example on $500,000 purchase that qualifies for the $15,000 First Home Owners Grant in QLD. |
6-7% of the purchase price | Maximum LVR 95%. This means including LMI, so a 92% Loan + 3% LMI = 95% |
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Deposit needed to cover transfer duty, and other settlement costs $27,511 |
4-5% of the purchase price | Maximum LVR 97% This means including LMI, so a 94% Loan + 3% LMI = 97% |
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Deposit needed to cover transfer duty, and other settlement costs $14,077 |
How To Buy With No Deposit
No deposit loans are possible, but there are limited options. Some of the options include:
- Guarantor home loan. A guarantor is someone with an existing property who is willing to take on the legal responsibility should you not be able to repay your loan.
- Gifted funds. If you have family members or friends willing to give you a gift of the entire deposit, you can buy a home without having to save for a deposit.
- Partnering with someone. This is called a joint venture. In this case, the other person can put up all the deposit, and you make the repayments until you have reached the deposit amount. After that, you can start sharing the repayments halfway.
- A property syndicate. It is like a joint venture, but more people are involved in the purchase.
- Medical professional. If you are a medical professional, you may be able to borrow 100% of the property value.
- Advantageous purchase. This is extremely rare but possible.
- Rent to buy. In this case, you essentially buy now and pay later based on a pre-agreed purchase price. We usually discourage homeowners from using this route.
Guarantor Home Loan
The best way to get a no-deposit home loan is to set up a guarantor to secure your loan.
This is a great way to help speed up getting into the property market.
What is a guarantor?
A guarantor is a family member who uses their house or investment property as security against your new home loan. For the property to be used, it must have sufficient equity.
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. This means 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.
- Guarantor’s 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 must owe less than 80% of the property value on their home loan. We’ll go into this in more detail shortly.
- Your guarantor needs to be currently working. Many banks will not allow a security guarantor from a retired or elderly guarantor. However, 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 a 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 with a guarantor home loan, in some cases, lenders will still want to see at least 5% of the purchase price in genuine savings. Genuine savings is money you have on the side to prove that you have some fallback money.
The good news is, if you don’t have genuine savings but have been faithfully paying rent, this can also be used as genuine savings!
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?
A Guarantor is most commonly used for first home buyers, and most backs will only allow this.
However, some lenders will allow second-home buyers to get a guarantor. However, the expectation is that they should already have a strong financial base in order to buy a second property. That said, some lenders are willing to review cases where the borrower has been sick or has been through a divorce.
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 as if you were getting a regular loan. Your current income will be looked at, as well as any debt, credit carbs and liabilities that you have. As a general rule, 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.
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 financially. 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 an LVR higher than 90%, meaning having a 10% deposit will make you eligible to lend with them. Your lender’s mortgage insurance rate will be cheaper too.
- 15% deposit. The higher, the better. 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 the traditionally recommended deposit and a great place to be 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
Unfortunately, these days a 5% deposit won’t cut the mustard. As we mentioned in Chapter 1, You’ll need a minimum of 8% in savings unless you’re buying a brand-new place.
Here are a few practical examples
Deposit/House Price | $ 250,000 | $ 300,000 | $ 350,000 | $ 400,000 | $ 450,000 |
7% | $ 17,500 | $ 21,000 | $ 24,500 | $ 28,000 | $ 31,500 |
8% | $ 20,000 | $ 24,000 | $ 28,000 | $ 32,000 | $ 36,000 |
9% | $ 22,500 | $ 27,000 | $ 31,500 | $ 36,000 | $ 40,500 |
10% | $ 25,000 | $ 30,000 | $ 35,000 | $ 40,000 | $ 45,000 |
You can play around with our deposit calculator to see how your deposit translates to your home price and monthly payment.
Here are some practical ways you can reduce the house deposit required:
- Consider buying a house in a less expensive area.
- Negotiate the house price with the real estate agent and the vendor to see if it can be reduced.
- Consider buying a smaller property like a unit.
- If you are good at DIY, you could opt for a fixer-upper that costs less but requires a little more work.
- Look for off-the-plan properties. Developers usually offer deals to people who buy the homes during the very early stages of sales.
Read More: Use the Deposit Calculator
3. What Kind Of Income Do You Need To Minimise Deposit?
The amount of income you need to minimise your deposit depends on the size of the loan you’re taking out.
If you’re sitting at a 95% loan-to-value ratio, you’ll find that lenders are much more conservative when they assess your income.
In this case, a higher income will help you get across the line and make it easier.
Income | $ 45,000 | $ 50,000 | $ 55,000 | $ 60,000 | $ 65,000 | $ 70,000 |
Min loan amount | $ 247,500 | $275,000 | $ 302,500 | $330,000 | $ 357,500 | $385,000 |
Max loan amount | $ 292,500 | $325,000 | $ 357,500 | $390,000 | $ 422,500 | $455,000 |
4. How to determine if you should pay LMI
Lenders Mortgage Insurance (LMI) is protection for the lender in case a borrower can’t repay their loan. It is important always to remember that LMI protects the lender, not you. So, for example, if you lose your income, LMI will not help you with repayments. If a borrower has a low deposit of anything under 20%, most lenders will require them to pay LMIWhy?
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 secures your mortgage with their property. So if you can’t repay your loan, it will fall onto the guarantor, not the lender. The only downfall is that a guarantor takes on a lot of responsibility, which can also put them at risk.
5. How Much Deposit Do I Need To Build A House?
Does a deposit for building a house differ from buying one?
When building a home, you’d need to get a construction loan which differs from a standard home loan. A construction loan is paid off in stages.
However, the deposit still works in the same way, and a minimum deposit between 5 to 8% is required. You’ll need to work out the cost of the land and the build to budget accordingly and take out the right size loan.
In Queensland, first-home buyers who are building a house will also be eligible for the First Home Owners grant.
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 rely solely on this and consider it as more of a bonus. Why? Because the grant will be paid at different times, depending on the type of property that you’re buying or building. So it might not be in your account in time to use as a deposit.
To be eligible for the First Home Owners Grant:
- You must be over 18.
- Australian 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, duplexes, townhouses, and a granny flat that has not yet 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 but are not yet occupied, like kit homes.
You must 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.
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
At what point you need to pay LMI is determined by your lender. (Remember, it’s insurance that protects the banks).
Sometimes, the cost will be paid as a lump sum upfront, while other lenders will allow it to be added to your home loan. In the case of the latter, you will 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 examined, and the higher your loan is, the more LMI you will have to pay.
Something to remember about LMI
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 and being aware of estimated costs is essential so that you can weigh 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. Which option is better?
The simple answer is that it comes down to your personal goals. Would you prefer to get into the property market sooner or wait and be more financially secure?
There’s no single answer because it depends on your goals and requirements.
8. Tips for buying with a low house deposit in QLD
Sometimes you may find yourself in a situation where buying with a low deposit looks more appealing. Here are some tips on how you can make the process of getting your home loan approved with a low deposit easier.
Clear Credit History
Credit history is important. Your credit file will be reviewed, and any outstanding debt should be consolidated and paid down to eliminate it. You’ll also need to make sure that the rest of your outstanding payments are paid on time.
At Hunter Galloway, we deal with many people with bad credit history. In this situation, it’s about knowing the correct lender to suit your needs.
Lower Personal Debt
Depending on the amount of personal 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 with high amounts of debt on their credit cards will often struggle to get their loans approved.
As a general rule, 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.
We will review Credit cards, personal loans and any extra requests and set up a strategy to reduce this debt.
Bonus: Should I put in a larger or smaller deposit?
When buying a property, the main question is: should I put in a larger or smaller deposit? Is it better to wait and get the 20% deposit, or should you try and get in with a smaller deposit of 10,9 or 8 per cent? There are pros and cons to both strategies.
Pros and cons of having a small deposit.
Pros:
- You might actually be able to get some of that tailwind of the property market increasing and locking yourself in before it gets out of hand and potentially too expensive to enter the market.
- It might give you another year or two to pay off your loan because when you do get a loan, you’re paying the place off progressively compared to renting.
- If you are in a situation where you are able to pay a little bit more than the minimum that you meant to pay on your payments, you can actually knock off that loan quicker.
Cons:
- When you have a smaller deposit, you’re going to pay extra fees. One of them is lenders mortgage insurance which we have covered above.
- Getting your loan approved can be harder because the approval process goes through different levels. Your bank assesses the application and then forwards it to the lenders mortgage insurers. It is here that your application can come into trouble because many different parties are assessing your application.
- In some cases, your bank will actually charge you a higher interest rate. Now it depends on the bank how much this is. It might be 0.1% or 0.2%, but there generally is a difference because they see you as a higher risk. So not only are you getting slapped with the lender’s mortgage insurance premium, you might be paying a slightly higher interest rate than if you have a 20% deposit.
- With a lower deposit, you are going to borrow more, so your repayments are going to be more, and it is going to affect your cash flow.
Pros and cons of having a larger deposit:
Let’s move on to the pros and cons of having a larger deposit. Now, when we say larger deposit, we mean more than a 20% deposit.
Pros:
- The first and most obvious pro is that you avoid lenders mortgage insurance so, effectively saving thousands of dollars.
- You are going to have more equity if you put in a 20% deposit.
- Another pro is that it is easier to get your finances approved. For example, a lot of the time, if you have more than a 20% deposit, they don’t need to see any employment history if you’re full-time or part-time. If you’re casual, they still want to see about 6 months. In some cases, banks don’t even want to see your deposit if you’ve got a 20% deposit; they’ll just take you on your word.
- When you have a larger deposit, you get better interest rates which saves you a lot of money.
Cons:
- The biggest detractor of having a larger deposit is that it takes you more time to save it. You might find the market will move on you, and you can no longer afford a house in the areas you were after when you started saving.
- Another con can be for an investment property where you might want to maximise your gearing and taxation purposes. If you borrow less, there are obviously fewer costs and expenses to claim on your tax which can go against you.
Next steps and getting your home loan
Our team at Hunter Galloway is here to help you buy a home in Australia. Unlike other mortgage brokers who are just one-person operations, we have an entire team of experts dedicated to helping make your home loan journey as simple as possible.
If you want to get started, please give us a call on 1300 088 065 or book a free assessment online to see how we can help.
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