First-time homebuyers in Sydney are curious about many things regarding home-buying, but among them, one of the most important questions they ask is how much deposit they need to raise to buy their dream home.
If you, too, want to know how much deposit you are going to need to buy your first home, read on as Wealthy You sheds light on this topic:
Calculate Your Price Range
The first step to answering the question is setting a minimum price range on which you can afford to buy.
This is quite simple - you will have to sit down and think of how much money you can afford to pay out of your monthly salary towards your home. If you draw a monthly salary of $5000 or $6000 and want to save some money for other expenses, you cannot afford to pay around $5000 for a home.
Larger Deposit Means Less to Borrow
The next step is determining how much deposit you need to pay upfront to buy your dream home. The minimum deposit cost varies from bank to bank, but it is usually around 5 -10% of the home price.
If you want to save the maximum amount possible, you can lower your home loan amount by paying a higher deposit. For example, if you had a home loan of $270,000, you would end up paying an extra $21,000 on your loan over the initial term. This will also lower your total interest paid over the initial term.
Let us now look at a real-life example:
Let us assume that you have $60,000 as your deposit amount for your home. If you want to reduce your home loan, you will have to pay $60,000 as a deposit to the bank. This will lower your home loan amount to $210,000.
Upfront Expenses to Consider
Apart from the minimum deposit requirement, you will also have to pay other expenses. Some of these are:
Loan application fee: Some banks will charge you a fee for considering your application, usually $100. This is non-refundable.
Loan valuation fee: You will also have to pay for the home loan valuation. Some lenders charge this fee, and you will have to pay around $300 for the loan valuation.
Stamp duty and other fees: You will have to pay stamp duty, legal fees, and other government taxes.
All of these add up to your total upfront home buying expenses. The banks do not hide these fees, so you will have to budget them in.
Other Factors That May Affect Your Loan or Interest Rate
#1 Loan-to-value Ratio
You may be wondering how much deposit you should pay if you want a lower home loan. Can you push the bank to give you a lower home loan interest rate if you pay a higher deposit?
Unfortunately, this is not the case. The bank will calculate your loan-to-value ratio. Your loan-to-value ratio equals your home loan amount divided by your deposit amount.
#2 Loan Size
The size of your home loan will also affect your loan-to-value ratio. In this case, larger home loans will result in higher loan-to-value ratios. The bank will charge you higher interest rates if your home loan is larger.
#3 Purpose of Loan
Your personal goals and the intended purpose of your loan will also affect your loan-to-value ratio and your home loan interest rate. If used as an owner occupied home or investment property, this will impact the final interest rate you end up with.
#4 Employment Status
If working as a PAYG employee with regular stable income for over three years, you might get a lower home loan interest rate. Challenging employment situations, such as being self-employed with minimum documents to verify income, may result in higher home loan interest rates.
#5 Credit Score
The most crucial factor affecting your home loan interest rate is your credit score. If you have a good credit score and a reliable job, your chances of getting a lower interest rate are higher.
Conclusion
Ultimately, it is your choice to pay a higher deposit upfront or to pay a smaller home loan amount with a larger deposit. However, if you wish to pay a lower home loan amount, you will have to pay a higher deposit to the bank. First-time homebuyers in Sydney need to understand how these things work before applying for a mortgage.
Wealthy You offers the best home loans in Sydney with the best interest rates. Whether you are a first-time homebuyer or this is your third investment property, our loan officers at Wealthy You have the best solutions for you. Contact us to know more!
