The dos and don'ts of deposits revealed

Getting a deposit together to buy a property can seem like climbing a mountain. With our insider tips, however, it’ll be more like a walk in the park (well, almost).

Do set a target

Saving for a deposit is a lot easier if you set yourself a savings goal – but how much do you need?

First you’ll need to work out what value of property you’re looking to buy, based on location, your needs and your budget — check out our Complete Home Buyers’ Guide for advice. Then, you can work out how much you need for a deposit. Most banks will now lend up to 95 per cent of the value of a property, provided you take out lenders mortgage insurance (LMI).

Many people think this means you only need to save five per cent of the property’s value – but Smartline mortgage broker Catherine Lezer says this isn’t enough.

“The reality is that you need enough money to cover your deposit plus other costs such as stamp duty, LMI, moving costs and lawyer fees,” she says.

Lezer recommends amassing 10 per cent of a property’s value – so if you’re looking for a house worth around $400,000, you should be looking to save up to $40,000.

Do be disciplined

There are no shortcuts when it comes to saving a deposit, whether it takes six months or two years. It’s all about making changes to your lifestyle – small and large – to amass the funds you’ll need. Check out these saving tips for inspiration.

There are a few things you should bear in mind from the outset. First, lenders want to see evidence of accumulating funds in your name, so Lezer recommends placing your funds in a separate high-interest account – ideally in an online-only bank (search for savings accounts here). While you should also endeavour to pay off debt, bear in mind the savings history requirement when clearing credit cards or car loans.

“In a perfect world you’d do both,” says Lezer. “However, lenders want to see a good, consistent saving pattern in your name. If you have to choose, it’s more important to have the savings than pay off debt.”

Don’t lock your deposit away

So, you’ve been diligently saving and now you’re ready to buy a house. How should you handle your motza so that you’re ready to pounce on the right property? Lezer suggests that a suitcase full of cash may not be the wisest course of action.

“However, it does need to be accessible, so it should be in an Australian savings account or term deposit that allows you to withdraw funds quickly – especially if you’re buying property in New South Wales,” she says.

Don’t be afraid to ask for help

If you’re tantalisingly close to having the needed funds and the perfect property is just out of reach, you can also look at using a family guarantee. This involves using equity from your parents’ property to top up your deposit.

“You still need to qualify for a loan, but your bank will also take a mortgage over your parents’ property,” says Lezer. “It’s worth investigating if you’re close to having a deposit and your parents are in a position to help you out. I’ve seen clients save up to $15,000 through not having to pay LMI as a result.”

Saving for a deposit may feel like climbing a mountain, but with a little discipline, some smart moves and a lot of perseverance, you can reach the summit – and buy the perfect property to call your own.