Buying your first home is a huge undertaking and a massive life step for anyone, so congratulations on your desire to become a homeowner! As you have undoubtedly heard, there are a lot of expenses involved in the process and many different agencies that will need to be involved to facilitate your purchase and move. But the biggest single question people agonise over concerns the main home loan and the deposit amount that you will be expected to pay to secure one.
Understanding how a home loan deposit is calculated
At its simplest, a home loan deposit is the amount of the overall loan that you agree to pay upfront to show your commitment to the following repayments and to demonstrate to the lender that you have the ability to put money forward. The actual amount of the loan required as a deposit will vary depending on the product that you opt for, but the most common amount, especially for a first-time buyer, is 5%. This is, however, entirely at the lender’s discretion and if they examine your credit history and have concerns then it is very possible that they will ask for a higher percentage. This happens because their complex algorithms analyse you and determine that you pose a higher risk of defaulting payments compared to their standard model, and as such, they do not want to take a 95% risk on you. Depending on how poor your credit history is, they may offer you a 90% loan, a lower amount again or even refuse your application. You should be aware of your credit status before you apply for this very reason.
How much will a lender offer me?
The total amount of the loan that a lender will offer you will be based entirely on your circumstances, credit history and money available for a deposit. Combining all of these factors, along with some subtle aspects from market data, a lender will be able to compute the maximum amount they are prepared to offer you. There is rarely any movement on this number unless new information is provided, but you can get a rough idea in advance using tools such as a loan calculator on the websites of lenders such as Multi Choice.
How is the deposit paid?
This will also vary depending on brokers, lenders and product stipulations; but the model used by most agents is that you have them as a single point of contact. You would pay them and they will hold the money until it is time to pay it on (usually all on the same day, but not always). It is common for them to deduct their fee from this amount, something the lender will be aware of. Most of this is not the concern of the buyer, and, so long as a reputable agent is being used, the process essentially handles itself from the buyers perspective, giving you one less thing to worry about.