How Much Do You Really Need For A House Deposit?

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10 Responses

  1. jefmiles says:

    Hey man,

    Loving the blog and keen to keep following / connecting and would love to have you on my blog at some stage!
    On the home loan deposit amount, I’ll say that I had <10% and barely 5% although didn't have to pay LMI.. you ask how?
    I did it through a guarantor situation through my mum, which is certainly not for everyone however I would have still gone with the LMI even if I wasn't lucky enough to have a family member offer up some equity.. Attempting to save that extra 10% or so for me misses the point (if you're doing it for investment purposes).. By the time you save the 10% the prices may have then increased by 5%, which leaves you in a situation of chasing your tail.. Our most valuable resource is time, which helps with compound growth.. Then again it's gotta be about how comfortable the individual feels about debt, what they're looking to achieve etc

    Looking forward to getting in touch! 🙂

    • tom says:

      I had not considered a guarantor situation, mostly because I do not believe our parents would do that. But if you can it definitely removes the need for LMI. I glad you managed to do that. By the time you have saved an extra 10% prices may also have fallen by 5%, so you could be getting a double bonus. If it is an investment then I can easily understand different points of view (as it is an income producing asset). But for a home, the larger the deposit the faster you can pay it off and the smaller the amount of interest you pay. In my specific case having a 20%+ deposit rather than a 10% (keeping our repayments fixed) saved us $223k of interest and 9 years, but only took 2 extra years of saving to get up to that 20%+ deposit. Even with the house price rises that happened over that time and the extra rent we had to pay it is well under $223k. It was closer to $80k to $90k, of which about $60k was the house price increase of about 6% for each of the 2 years. I count that as a big win, although like you said I don’t like “unproductive” (non income producing) debt.

  2. jefmiles says:

    Thanks for the response Tom! Will keep an eye out and liking the idea of your blog
    Agree it really depends on what the situation is & I’m very grateful to have the opportunity to have the guarantor option available.

    Not sure in Australia that I can see at drop in house prices, more likely they’ll stagnant or grow at 1% or so for a few years. Having said this I don’t pretend to be able to predict what any investment will do & in some areas i.e. Northern Beaches of Sydney or Sutherland where people may have paid too much for property could see a drop

    • tom says:

      Glad you are thinking the same as me for house prices. I wish I had data to back it up (I am an analytical person), but it just feels like house prices cant go shooting up from here, but also cannot fall by too much (or I think they may have done so more some time after GFC). Only time will tell. That is one of the reasons I started this blog, so I could put my predictions down and be able to look back years later and laugh (or cry).

      • jefmiles says:

        Haha hopefully not too much or any crying :)..
        It’d be great to have you check out my blog & get some perspective off you on your thoughts on it too.. I’ll shoot you a side note!

        • tom says:

          Is your blog at mycareercrusader? It currently seems to be a for sale page, so you may want to check the domain registration or something like that.

  3. Jef says:

    Hey Tom,

    It’s actually, mycareercrusader was an old one that is probably still associated with my WordPress sign-in here.. Not sure how to resolve that :O..

    I got your note to my gmail account and was going to reply but looks like you beat me to it!

  4. Jaymee says:

    Wow congrats on buying your first home Tom!

    I loved reading this article because despite the fact I don’t live where you are, I understood what you’re talking about (just translated it into Canadian terms :P).

    I’ve been looking for our first house as well. Right now we’re almost at the 10% mark plus fees (thankfully, our fees aren’t that great here, I was quoted about $2-5000 in closing fees). I’m comfortable going in at 10% down payment (or deposit as you call it) but would feel even better if we got closer to the 20% so we don’t have to pay insurance. We’ll see how it goes though and if we find the right house. 🙂 congrats again!

    • tom says:

      Thanks Jaymee! There is a lot of differing opinions around down payments. As Jef pointed out one way to avoid LMI is to get a guarantor (or at least in Australia). Im a big fan of large deposits (you may have guessed), but as lots of people point out you can’t live life only in Excel (something I have to remind myself almost every day). Good luck finding a place you like – I am sure you will tell us when you do. I have a memory of a blog post you did about almost getting one previously.

      • Jaymee says:

        Oooh I love that.. that comment about not living your life only in Excel (I’m so guilty of that so many times!)

        And I feel flattered you remember that old blog post of mine 🙂 Yes still searching but I’m sure the wait will be worth it. Thanks so much Tom!

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