Getting a home loan with a 79% deposit
In this article, we’ll look at the FAQs that home buyers have when buying a home with a 79% deposit in Australia. We’ll look at how it works, who is eligible, additional costs on a 79% deposit mortgage, risks and how grants work. Need a quick chat to discuss your options? Speak to our team.
What is a 79% deposit home loan, and how does it work?
A 79% deposit home loan requires the borrower to provide a deposit that covers 79% of the property’s purchase price, leaving only 21% to be financed through the loan. This type of loan is highly uncommon in Australia, as typical home loans usually require a deposit of around 20%, meaning the borrower finances 80% of the property’s value. A 79% deposit significantly reduces the lender’s risk, potentially leading to more favorable loan terms, such as lower interest rates. However, such a large deposit is rare because it requires substantial upfront capital, which most homebuyers do not have. In Australia, the standard practice is to save for a 20% deposit to avoid lenders mortgage insurance (LMI), making a 79% deposit an outlier in the housing market.
Who is eligible for a 79% deposit home loan in Australia?
A 79% deposit home loan in Australia typically requires the borrower to provide a deposit that covers 79% of the property’s purchase price. This type of loan is unusual, as most home loans require a much smaller deposit, usually around 20%. To be eligible for such a loan, the borrower would need to demonstrate substantial financial resources to cover the large deposit. Additionally, they would need to meet the lender’s standard criteria, which may include a good credit history, stable income, and the ability to repay the remaining 21% of the loan. This type of loan might be suitable for individuals with significant savings or equity in other properties, but it is not common in the Australian mortgage market.
Are there additional costs associated with a 79% deposit home loan?
Yes, there are additional costs associated with a 79% deposit home loan. While the large deposit reduces the loan amount, borrowers still face costs like closing fees, appraisal fees, and possibly private mortgage insurance (PMI) if the lender requires it. For example, on a $300,000 home, a 79% deposit means a $63,000 loan. Closing costs typically range from 2% to 5% of the loan amount, so you might pay $1,260 to $3,150. If PMI is required, it could add 0.5% to 1% annually, costing $315 to $630 per year. Additionally, homeowners insurance and property taxes are ongoing expenses. These costs can vary based on location and lender policies, so it’s crucial to review all terms carefully.
What are the risks of a 79% deposit home loan?
A 79% deposit home loan significantly reduces the amount you need to borrow, but it comes with certain risks. First, tying up a large portion of your savings in a deposit can limit your financial flexibility and emergency fund availability. Additionally, if property values decline, you risk losing a substantial portion of your investment, potentially leading to negative equity. This type of loan may also offer fewer tax benefits compared to loans with smaller deposits. Furthermore, the opportunity cost of using such a large sum for a deposit could mean missing out on other investment opportunities that might yield higher returns. Lastly, if your financial situation changes, such as a job loss or unexpected expenses, having less liquidity could pose significant challenges.
Can I combine a 79% deposit home loan with Australian government grants or schemes like the First Home Guarantee?
Yes, you can potentially combine a 79% deposit home loan with Australian government grants or schemes like the First Home Guarantee, but it depends on the specific eligibility criteria of the grant or scheme. The First Home Guarantee, for instance, is designed to help first-time home buyers purchase a home with a deposit as low as 5%, by allowing them to avoid paying Lenders Mortgage Insurance. However, since you already have a substantial deposit, you may not need this particular scheme. It’s important to check the specific requirements and benefits of each government program to see if they align with your financial situation and goals. Consulting with a mortgage broker or financial advisor can also provide personalized guidance on how to best utilize available grants and schemes.
Need extra help?
If you’ve saved 79% as a deposit towards your home purchase and need advice on the best mortgage to suit your needs, speak to one of our friendly brokers.
