There is one benefit to the softening housing market and the media shoving headlines down our throat about house prices dropping 40%. That benefit is that first home buyers or people trying to get back into the property market can now see an opportunity to buy their property. Whether they didn’t have enough deposit before or weren’t ready to commit to a property, now they can see the light.

Some of the factors for this is that property investors have been scared away from the banks due to higher interest rates and stricter lending criteria, overseas buyers have been impacted by government regulations and higher stamp duties and to top that off, banks have made it harder for everybody to get loans. But for first home buyers, this presents a perfect opportunity to get into the market without having to compete with a cashed-up property investor.

So that brings me to this weeks topic – how much do you need to get into the property market? I think this is an important topic as many people I speak to have a preconceived idea that they need a 20% deposit plus the costs of stamp duty etc. The reality is that you can purchase a property with a 5% deposit, however, the more deposit you have the stronger the loan application becomes and less you pay. If you have less than 20% deposit there is a one-off insurance premium that you pay to protect the bank, not you. This insurance is called Lenders Mortgage Insurance or LMI. So, to minimise the LMI premium you need to save as much as you can to put towards purchasing your property.

However, if you only have 5% and you think now is the time to take action and purchase a property, then we can obtain a loan for you to purchase your property. But what about the LMI? Well, then we need to see the LMI premium as an opportunity cost, the opportunity cost to get into the market now and take advantage of any potential future gains in your property value, which might outweigh the costs of the LMI premium. We have done many loans for customers with 5% deposit over the last few years and the clients have benefited massively in the following ways

1. They have entered into the property market
2. Their property has grown by more than 30% since the time they purchased their property
3. They have rescued themselves from the rent trap (where your rent consumes most of your savings, so you can’t save for a property)

So in summary, you can purchase a property with a 5% deposit, a 10% deposit would be better and a 15% or 20% deposit would be perfect.

In addition to your deposit, first home buyers can also take advantages of the government grants which can help with your overall deposit or reduce the expenses.

Your big opportunity may be right where you are now. Napoleon Hill

Thank you for reading.