What does it cost to buy a property?

This is a great question! We have all heard the Australian dream is to own a home, so what deposit to we need to make the dream a reality?

To answer the question, there are two checks the banks look at when they assess you if you will be able to borrow funds;

 

1. DEPOSIT: Do you have enough of a deposit or equity to put down for the loan

2. SERVICEABILITY: What is your income, expenses and surplus funds; i.e. can you afford the loan
For the purpose, if this article, we are just going to touch on check 1, the DEPOSIT. Before I jump into
it, there is a fair bit of jargon that goes on in banking land, so let’s touch on this first!

 

DEPOSIT: The amount that is required before you can borrow funds from a bank. This will be a % of
the value of the property and can be made up of equity or cash.

EQUITY: the value of an asset less the liability i.e. if you own a property worth $400,000 with a loan
of $300,000 then you have $100,000 equity in this property

LOAN TO VALUE RATIO (LVR): How much of an asset you own vs how much the bank owns in a % i.e.
in the above example, you would have an LVR of 75%

LENDERS MORTGAGE INSURANCE (LMI): this is an insurance the bank takes out over you if you don’t
have a 20% or greater deposit and then charge you the premium, which can be big biccies. They then
add this on top your loan amount and charge you interest on it (thanks banks).

For many reasons, lending requirements have tightened, meaning banks aren’t lending as easily as
they used to. That doesn’t change how much of a deposit you need. Ideally having a 20% deposit will
ensure you don’t need to pay LMI. If you have between 5-10% deposit you will be slugged LMI.
Below are examples of the amount of deposit or equity that is needed for a purchase of $500,000 in
Victoria. Please note there are variable here that can change but this will give you the gist- it’s always
important to speak with a mortgage adviser;

 

Below are examples of buying a home for $500,000 (in Victoria, as the Stamp duty and first home
owners grant changes from state to state).

 

Having a 20% deposit on a property (not a First Home Owner);

Purchase price $500,000
20% deposit $100,000
Stamp duty approx. $21,970
Conveyancing and transfer costs approx. $2,000
Total funds needed: $123,970

Having a 10% deposit (not a First Home Owner);

Purchase price $500,000
10% deposit $50,000
Stamp duty approx. $21,970
Conveyancing and transfer costs approx. $2,000
LMI approx. $8,000
Total funds needed: $73,970

Having a 5% deposit (not a First Home Owner);

Purchase price $500,000
5% deposit $25,000
Stamp duty approx. $21,970
Conveyancing and transfer costs approx. $2,000
LMI approx. $15,000
Total funds needed: $48,970

Having a 10% deposit (First Home Owner- VIC);

Purchase price $500,000
20% deposit $50,000
Stamp duty approx. $0
Conveyancing and transfer costs approx. $2,000
LMI approx. $8,000
Total funds needed: $52,000

As a tip, a great way to reduce or remove LMI is to have a family member as a ‘guarantor’ on your
loan. This comes with pros and cons and your family should be aware of this, discussing your options
with one of the Pursue Wealth team is advisable.

It can sometimes feel overwhelming but you are not alone. The team at Pursue Property work with
this stuff all day long, and would you believe it, they actually LOVE IT! No question is a silly one, give
the team a call to discuss where to start or what options you have.

We would love to HEAR FROM YOU

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174 CECIL ST
SOUTH MELBOURNE, VIC 3205
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PHONE: (03) 9686 1784

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