Buying your own property may seem like a far-flung dream at times. You may feel like you’ve been saving for a lifetime but have no idea when is the right time to apply for a mortgage. Well, there are a few variables that will influence when the ‘right time’ is other than how much is in your savings account. In this article, we’ll take you through the process to decide whether you’re ready, giving you the confidence that your dream home will someday be yours!
More than just your savings…
The amount of savings you need will depend on a few things:
- The price of the home you’re looking to purchase
- The period in which you’d like to pay off your mortgage
- The mortgage provider you go with – as this will change the interest %
- Who, if anyone you’ll be applying for the mortgage with
- Your employment history (has it been consistent?)
- Your savings history (can you show that you’ve consistently saved?)
You can now receive loans of up to 90% of your total house price, meaning you’ll only need a 10% deposit to secure your home. However, to be accepted on mortgage schemes that only require a 10% deposit you have to show consistent employment, a great credit and savings history. In addition, you should also consider how much your monthly payments will be as having savings in the bank to help support your mortgage payments can be really helpful.
We would advise having at least a 20% deposit if you can afford it. The 20% deposit will potentially decrease the interest on top of your mortgage payments and of course, reduce the amount of price of your monthly payments too.
Can I get any help with the deposit?
If you’re a first-time buyer, yes you can! The First Home Owner Grant differs from state to state but can contribute to the payment of a portion of your home loan. This will be paid to your home loan lender at the time of property settlement. To find out more check out the Federal Government’s First Home Owner website.
Is there anything else you need to save for?
Of course, most of your savings are to cover the cost of the deposit, however, there is LMI to consider. LMI (Lenders Mortgage Insurance). This is necessary if your deposit is less than 20%. It essentially protects the lender if you’re unable to make your payments and protects you from potentially having your home taken away from you. LMI will push up your overall mortgage cost, so it’s really important to consider if you’re opting for a <20% loan. A way to get around this is to have a mortgage guarantor. A guarantor will put up another property as an asset that can be liquidated (a parent might be the guarantor for their child, and if they don’t make payments will need to sell their home). This can be risky but if you’re sure you can make repayments, it may be an option.
So how do I know what amount I need?
- Work out the % you’re looking to borrow: your total home budget subtract the % you’re looking to borrow. So either 10% or 20% of the total cost.
- Add the amount needed for Lenders Mortgage Insurance, if taking out a loan less than 20% and without a guarantor.
- Subtract the total amount of the Government grant if you’re a first-time buyer.
- Divide by how many people you’re buying with (if anyone).
This should give you the total number you’re looking to save. The best way to reach this goal is little and often – saving consistently with a direct debit straight into a savings account every week, month or whatever timeframe you’re comfortable with.
We hope this has helped answer the question ‘how much savings do you need to get approved for a mortgage?’. If you have more questions or need more expertise either look at our other blogs or get in touch with our team who’d be happy to help!