The Australian dream of homeownership can feel out of reach for many, especially with rising house prices. Saving a 20% deposit can seem like a never-ending marathon, but fear not! There are ways to step onto the property ladder even if your savings aren’t quite there yet.
We’ll help you explore low-deposit home-buying options in Australia and make your dream of buying a home a reality.
Understanding the Australian Housing Market
he dream of homeownership is a cornerstone of the Australian way of life, but recent trends are making it increasingly difficult to achieve. Here’s a breakdown of the challenges in the Australian housing market:
Since 2014, housing prices have skyrocketed 30% faster than wages. This means saving for a deposit takes longer, with a recent ANZ Core Logic report revealing it takes an average Australian 10 years to save a 20% deposit for a house. That number is even more daunting In Sydney, stretching to a staggering 12.6 years. On top of that, Sydneysiders are feeling the pinch with mortgage repayments – it now takes a record 58.1% of their income to service a new loan.
According to the National Housing Finance and Investment Corporation, the average first-home buyer deposit in Australia has skyrocketed to a whopping $159,000! That’s a 50% jump in just four years. No wonder it takes so long to save!
In Sydney, a 20% deposit on a median house translates to a massive $258,706. When you factor in stamp duty and taxes, you’re looking at needing to save well over $300,000.
So, what can you do?
Don’t despair! Here are some strategies to explore low deposit options and navigate the Australian housing market effectively.
Lenders Mortgage Insurance (LMI)
LMI is a way to buy a property with a lower deposit than the typical 20%. It acts like a safety net for the bank, covering them in case you can’t repay your loan. If you’re willing to pay for LMI, most lenders will allow a down payment as low as 5% on a house. However, to qualify, you’ll need a good credit score, a steady income, and a strong employment history.
Government Initiatives
The Australian government offers a few schemes to help first-home buyers enter the market:
- First Home Guarantee (FHG)
This scheme allows eligible first-time buyers to purchase a property with a deposit as low as 5%. The government guarantees a portion of the loan, eliminating the need for LMI.
- Family Home Guarantee – This is specifically for single parents or single legal guardians of at least one dependent who want to buy a home with a deposit as low as 2%. Similar to the FHG, the government guarantees a portion of the loan with no LMI.
- Regional First Home Buyer Guarantee – This scheme is an option for eligible first-home buyers to purchase a property with a deposit as low as 5%. The government guarantees up to 15% of the home’s value. The scheme is designed to help 10,000 regional first-home buyers each year, so there’s a good chance you could be eligible.
- Indigenous Home Ownership Program (IHOP) – IHOP is a program offered by Indigenous Business Australia (IBA) designed to help Indigenous Australians achieve home ownership. IHOP offers low-deposit home loans at competitive interest rates. This makes it easier for Indigenous families to get on the property ladder and build wealth through homeownership.
- First Home Owner Grant (FHOG) – It is a fantastic program to help first-time buyers bridge the gap towards homeownership. While you can’t buy a house solely with the FHOG, being eligible for it can still be an advantage to getting approval for a loan. Most lenders require a minimum of 5% genuine savings as a deposit to see you’ve saved independently. It shows you’re serious about buying and helps you get closer to your dream home!
Guarantor Loan
In this scenario, a close family member, typically a parent who owns a home, uses the equity in their property as security for your loan. This essentially assures the lender that the loan will be repaid, even if you can’t meet the repayments. It’s a big responsibility for your guarantor, so make sure you have a frank discussion about the risks and commitments involved before proceeding.
Family Pledge
Similar to a guarantor loan, a family pledge involves a close relative using the value of their property as collateral. However, a family pledge is a less formal arrangement in comparison to a guarantor loan. This means there’s less paperwork involved. While this flexibility can be appealing, it’s crucial to have open communication and clear expectations with your family members. A written agreement outlining the terms can help avoid misunderstandings down the road.
Understanding Deposits & Savings for Loan Success
Securing a home loan requires careful planning, and understanding how lenders view your deposit and savings is crucial. Here’s a breakdown to strengthen your application:
Genuine Savings
This is a key factor. Aim to have at least 5% of the loan amount saved in your account for at least three months. This demonstrates your financial discipline and ability to manage ongoing mortgage payments.
Here’s why genuine savings matter:
- Reduced Loan-to-Value Ratio (LVR)
A higher genuine savings amount translates to a lower LVR. This is the percentage your loan represents of the property value. A lower LVR often translates to better interest rates, saving you money in the long run.
- Stronger Application
A solid savings history highlights your financial responsibility to lenders, increasing your chances of loan approval.
Remember: Buying a home with a low deposit requires planning and patience. With dedication, smart saving strategies, and exploring the available options, you can turn the dream of homeownership into a reality. With the right approach, you’ll be well on your way to owning your own home!
Seek Expert Advice
Don’t navigate this alone! A mortgage broker or financial advisor can assess your financial situation and help you understand your options, assess your eligibility for government schemes, and secure the best possible loan deal for your situation.
Owning your dream home, even with a low deposit, is possible!
At Sydney Real Estate Group, we specialise in helping first-time buyers like you achieve homeownership. We’ll guide you through available government grants that allow you to buy a property with a lower upfront investment. If you’re an essential worker, we can connect you with specific programs and benefits designed to make home-buying easier.
Our team of experts will walk you through every step of the process, from understanding your options to navigating the application process. We’ll be there for you throughout your homeownership journey, answering questions and offering advice.
Don’t let a low deposit hold you back. Contact Sydney Real Estate Group today and let’s turn your dream into reality!
