How to save for a house deposit

4 min read

Saving for a property is an exciting goal. You need a budget to help you manage your spending and a regular savings plan to help you build the deposit.

Lenders Mortgage Insurance

Don’t forget if you can save a deposit that is more than 20 per cent of the value of your property, you can generally avoid paying Lenders Mortgage Insurance (LMI). LMI enables lenders such as Westpac to lend you a larger percentage of the purchase price. This can be included either in your upfront costs or in your loan repayments so that it’s spread out over the term of the loan.

How to use the equity in your existing property to purchase another place

Equity represents the part of a property that is owned outright - for example, if a property is worth $700,000 and is supported by a $200,000 loan, the total equity is $500,000.

You can use the equity in your home by upgrading into a bigger home or different suburb. If you have a significant amount of home equity, your lender may not require a deposit. A lender or mortgage broker will be able to tell you more.

If you are buying an investment property, a bank will lend against it just like they do against your family home. Let’s assume you’re buying a $500,000 investment property, the bank will lend up to 80% of this value, which is $400,000. This leaves a gap of $100,000 that will be your cash deposit. Add in the estimates for stamp duty and legal fees, and you might need a deposit closer to $120,000.

Protecting yourself and your property

Choosing the right insurance for your property is a critical decision for homeowners – and if you’re applying for a mortgage, your lender might not approve the loan without evidence that you have ‘home and contents’ insurance in place.

Home insurance covers the cost of loss or damage to a building such as a house, while the contents insurance protects you against any damage or loss of your possessions. Home and contents insurances usually come as a 'home and contents insurance' bundle but they are separate policies so you'll need to work out what cover you need for each.

If you’re a property investor, you may also need ‘landlord insurance’ because building and contents policies don’t usually cover landlords for the specific risks associated with owning rental property. These risks include malicious damage by tenants, many types of accidental damage, legal liability to protect against death or injury on the property and loss of rental income as a result of damage to a property or a tenant taking off without paying the rent.

Need help understanding your financial options for buying a new house? Contact us to arrange to speak to a BT adviser
You may be sceptical of the need to pay for financial advice, however there may be benefits from sitting down with a financial adviser.
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This information is current as at 15/08/2016.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs.

This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

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