The property investment deposit is the first step in the process of owning a property. It literally lets you put one foot in the door of the property.

The recent hikes in home prices have meant that one has to reach further in their pockets for a deposit. Deposits have gotten bigger and out of reach for first-time property investors as well as some old timers. The absolute minimum deposit on a house is 5% of its purchase price plus costs, but even that can be impossible to get unless you’re a high income earner.

If you’re a low income earner, you have to do better than a 5% deposit. Most lenders tend to stay away from a borrower with a small deposit because he’s considered to be riskier. Also, you’re restricted in your choice of deals. The general consensus is that you need to place over 20% on a property if you want access to competitive rates and a larger pool of lenders.

This doesn’t necessarily apply to high income earners. Even when banks want the big ones, high income earners get to borrow 90% and more of the property’s value.

Either way, you need to have a deposit. And that’s the focus of this article—to let you know how you can get it.

Start Saving Early Enough

The simplest and commonest means of building up a deposit is to save as much as you can as soon as you can.

Saving, for those that don’t do it on the regular, can be daunting. There are a variety of ways you can do it and you don’t have to turn your life upside down, but you have to make a few sacrifices. It could mean giving up on that plush golf club membership or eating out unnecessarily until you have saved up enough for you house. If you’re diligent with a good savings plan, you can have the deposit sooner than later.

How much money do you need for your deposit?

There are no hard and fast rules when it comes to how much you need to deposit on a home. There are many lenders, each one with their own requirements. They usually consider a deposit of 5 percent as the minimum, such that they are lending you 95 percent of your home value. A good mortgage broker will be able to hook you up with such a deal, at a reasonable rate as well. But then you would have to pay the lenders mortgage insurance (LMI)—insurance in the event that you default on your home loan. In case you don’t want to pay the LMI, you have to pony up more than 20 percent deposit.    

This means that the amount you need for your deposit is equal to 5-20% of the purchase price plus fees and charges such as stamp duty and legal fees, plus an LMI premium if you’re borrowing more than 80% of the value.

The simplest and commonest means of building up a deposit is to save as much as you can as soon as you can.

Tips to Get Your Deposit Faster

Budget Wisely

One of the first things that you need to do is develop a plan to help you save towards your deposit. Set out clearly what your income is and the cost of your living so that your new savings culture doesn’t get in the way. Find expenses where you can compromise and cut back. You’ll be able to save more money for your deposit.

Stop or Reduce Rent Expenses

Rent is one of the biggest expenses for many young people and a deterrence to effective saving. One of the best options to negate it completely is to move back into your parent’s home, if you don’t have kids.  

If you have big family and you live in a high-rent home, you can opt for a cheaper house to reduce on the money spent on rent. The other option is to move out of the top dollar area to an adjuscent suburb form where you can access similar amenities.  

If you’re single, you can move in with a friend and share the rental expense. Moving into a shared house will free up the money that can contribute to the savings for a place of your own.

Make your Savings Work for You.

If you have a positive balance in your savings account, you could anchor it to your mortgage to lessen on the amount of interest you have to pay on your home loan. The interest payment due on the loan is offset by the interest on your savings, and charged only on the net balance of the loan less the savings. This is what an offset loan is, and it’s provided by most lenders.

Invest Your Savings

While we are at it, why not invest your savings and let them work for you? This is a good option especially if you are planning to buy the property in a few years’ time. You can invest in stocks or a managed fund. Get help from a seasoned financial advisor that specializes in shares that can help you get the most out of your savings.  

Get a Helping Hand With Your Deposit

A little help is all you require to get a jolt with your deposit and suddenly buying a property is more realistic. There are ways you can do this:

Guarantor Loans

Guarantor loans are one of the most popular options for first home buyers. They work in such a way that a guarantor—usually an immediate family member—lets their property’s equity be used as security for your loan. If you don’t have enough money for a deposit but do have the means to repay the home loan, a guarantor can help you secure more funds.  

Borrow

There’s this route although not many will consider it. You can borrow from Mum and Dad or even your siblings so as to beef up your deposit.

If they are willing and able, then borrowing money from them will not do you any harm. It’ll only speed up the process of getting the deposit to buy your own home. Make sure you agree on the terms of loan. If there’s interest to be paid, agree before-hand on the rate, as well as the duration of the loan.  Your parents can also give you a cash gift or part of your inheritance, which is even better.

Cash Build up Investment Option Program

This is a new feature that will be launched soon at Invest in Properties. The gist of it is that you invest with us in any of our property development projects and share in the returns when we sale.

For those sitting on 50 or 100k in a low interest savings account hoping to buy big homes, this program could be a suitable alternative to growing a deposit. It certainly offers better returns than the banks’ 2 or 3%. Conservatively, the rate of return you could make off your investment is 21%, but it can go up to 38% depending on how long we hold the money, the market movements, and auction prices at the time of sale.  

This program offers you a real chance at achieving your ambitions. It also exposes you to the inner workings of real estate construction and sale.