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Article | 4 minute read

Home loan deposits explained

If you’re saving hard for your home deposit, you may be wondering why you need one and what exactly you’re meant to do with it.

What is a home loan deposit?

A home loan deposit is your initial contribution to the purchase price of a property. It means that you own a small portion of the home. A bigger home deposit may mean not having to borrow as much money, which may mean paying less interest over the life of your home loan. It could also mean paying off your loan sooner.

When you own more of the property with a larger deposit, it reduces the risk to the lender giving you the home loan. That’s why generally, the lender will require that you have a home deposit.

Many lenders now require a home deposit of 20% of the purchase price (excluding transaction costs). Some will accept lower deposits but you may have to pay Lenders Mortgage Insurance (LMI).

You’ll also need additional savings to meet property transaction costs such as solicitor/conveyancer fees, stamp duty and other charges. 

If you’re not eligible for exemptions or concessions, stamp duty costs can be substantial. Use our home loan deposit calculator to estimate how much you’ll have left for a deposit after stamp duty and other costs. 

Can I buy a house with a low deposit?

While low deposit home loans can help you buy a home sooner, they could come with stricter lending criteria and most lenders will require that you pay the cost of LMI.

Here are some ways you could buy a home with a low deposit.

Find a guarantor

Asking a family member to be your guarantor could help you buy your home with a low deposit. Just be aware that being a guarantor is a big commitment that your guarantor should think about carefully. If for some reason you default on your loan, your lender could seek to recover money from your guarantor. We recommend your guarantor obtains independent financial and/or legal advice, so that they fully understand the risks of entering into a guarantee.

Apply for the First Home Loan Deposit Scheme (FHLDS)

The FHLDS allows a limited number of eligible first home buyers with a 5% deposit to get a home loan without paying LMI.

Use the equity in your current property

Equity is the difference between the value of your property and how much you owe on it.

If you already own your home, your lender might let you use the equity in your home to borrow additional funds, using your home as security. You should seek advice from your financial adviser and registered tax agent before making a decision whether to do so. Alternatively, you could use the equity in your home to apply for a supplementary loan.

When do I pay the deposit?

In a private sale, you pay the deposit once you and the vendor have exchanged signed contracts. If you buy at auction, you must sign the contract and pay the deposit on the day. Generally, the vendor or real estate agent will require 10% of the purchase price and this serves as a part payment before settlement takes place. At settlement, you will officially own the property and pay the remainder of the purchase price.

How can I pay my deposit?

Here are the most common ways to pay a deposit:

  • Personal cheque - Cheques aren’t used much these days but they’re still a common way to pay on auction day.
  • Counter cheque - You’ll need to get one from a branch if you’re intending to buy at auction.
  • Bank transfer - Some vendors accept a bank transfer – Most internet banking accounts have a daily transfer limit, so check that your limit will be enough.

It’s a good idea to ask the real estate agent how they prefer to receive the deposit. This is especially important if you’re intending to buy at auction, as it gives you time to move money between accounts or organise cheques.

Find more about paying a deposit.

What is a deposit bond?

If your deposit is tied up in other assets or investments, you may be able to use a deposit bond instead. A deposit bond is a guarantee to the vendor that you will pay the deposit at settlement.

Not all vendors and real estate agents accept deposit bonds. You’ll need to check before you bid or buy.

ANZ does not offer deposit bonds. Please contact your legal or financial adviser who may be able to provide you with more information about deposit bonds.

To sum up

  • A home loan deposit is your initial contribution to the purchase price of a property.
  • A deposit below 20% may mean you pay Lenders Mortgage Insurance (LMI).
  • You may be able to get a low deposit home loan if you have a guarantor, equity in your existing property or through the First Home Loan Deposit Scheme (FHLDS).
  • If you buy at auction you pay the deposit on the day.

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The information on this page does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you and read the relevant terms and conditionsProduct Disclosure Statement and the ANZ Financial Services Guide (PDF) before acquiring any product. 

Applications for credit subject to approval. Terms and conditions available on application. Fees and charges apply. Australian credit licence number 234527.

Property price information in an ANZ Property Profile Report is an estimate (not a valuation), may not be available for all properties, is for personal domestic use only and may change daily. Actual sale prices may differ. Accuracy assessed on final pre-sale predictions, national market comparison of free price predictors for listed properties and sales data as at April 2021. Applications for credit subject to ANZ’s credit approval criteria. The report is not personal advice and ANZ takes no responsibility for any error or omission.

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