Buying a house is an exciting period in anyone’s life. It doesn’t matter if you are looking for your first property or preparing to downsize for retirement, you’re going to want to find the perfect home and that means pushing your budget.
Of course, there are dangers in pushing your budget. The harder you push the more difficult it can be to keep going if you experience unexpected problems. However, the fact that an average of 59,000 mortgages are approved every month should help inspire you to start looking.
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The Size Of your Deposit
Before you check out the minimum size of deposit required, it is worth noting that there is no maximum. In other words, the bigger the deposit you can put down the smaller your mortgage will be. This will allow you to finish paying your loan earlier.
Naturally, balance is important. If you just keep saving for a deposit you will eventually be too old for a mortgage. That’s why you need to know the minimum deposit sizes.
But, before you dive into your mortgage, be certain to check if there is any help on offer locally. Many states provide grants and low-interest loans to help you acquire the deposit you need and get on the property ladder. It’s a good idea to check out what’s on offer, you could save a fortune.
The 20% Rule
The basic premise for a deposit is 20%. That means if you’re purchasing a house worth $400,000 then you’ll need a deposit of $80,000. That can be easily achieved for most people with homes as they can use the equity in the home they have/are selling.
But, if you’re a first-time buyer you may need to look at some of the other mortgage options on offer. It is possible to find lenders that will accept a 5% deposit. In the above example that would change the deposit to a comfortable $20,000.
However, to qualify for these types of mortgages you will need an excellent credit record and steady employment. You may also need proof of savings or a savings plan.
LMI stands for lenders Mortgage Insurance. This insurance must be paid by you and it protects the lender. In short, if you stop paying because you run into financial issues the bank will seize your home. They will then sell it. The difference between what they sold it for and the amount you still owe on the loan, along with reasonable interest charges, will be paid by the insurance. It protects the bank and gives them the confidence to lend you higher amounts of money.
Unless you win the house lottery, you should take the time to consider your finances and current lifestyle. This will help you to decide if you’re ready to buy, what sort of property you want, and how much deposit you can afford.