How Much Deposit Do You Actually Need?
When you're looking to achieve home ownership or invest in property, one of the first questions that comes up is: how much deposit do I need? The answer isn't always straightforward, especially for self-employed professionals who want to build equity and improve borrowing capacity.
Traditionally, most lenders prefer a 20% deposit when you apply for a home loan. This means if you're purchasing a property worth $800,000, you'd need to save $160,000. However, this isn't a hard and fast rule, and there are various home loan options available depending on your circumstances.
Understanding Loan to Value Ratio (LVR)
The loan to value ratio (LVR) is the percentage of the property's value that you're borrowing. It's calculated by dividing your loan amount by the property's value, then multiplying by 100.
For example:
- Property value: $600,000
- Deposit: $120,000 (20%)
- Loan amount: $480,000
- LVR: 80%
The lower your LVR, the more favourable your home loan application appears to lenders. A lower LVR often means access to better interest rate discounts and a wider range of home loan products.
What If You Have Less Than 20% Deposit?
Many professionals and self-employed individuals can still secure a home loan with a deposit as low as 5-10%. However, when your LVR exceeds 80%, you'll typically need to pay Lenders Mortgage Insurance (LMI).
LMI protects the lender if you're unable to meet your repayments. While it's an additional cost, it allows you to enter the property market sooner rather than waiting years to save a larger deposit. For those wanting to invest in property and build wealth, sometimes the opportunity cost of waiting outweighs the LMI premium.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Makara Finance today.
Deposit Options for Self-Employed Borrowers
If you're self-employed, lenders will assess your home loan application differently compared to PAYG employees. You'll typically need to provide:
- Two years of tax returns
- Business Activity Statements (BAS)
- Financial statements
- Evidence of consistent income
However, don't let this discourage you. Many lenders understand the nature of self-employment and offer tailored home loan packages that recognise your financial stability and capacity to service a loan.
Comparing Home Loan Products and Features
Once you've sorted your deposit, it's time to compare rates and explore different home loan features that suit your wealth-building strategy:
Variable Rate Home Loans
With a variable interest rate, your home loan interest rate can fluctuate based on market conditions. This means your repayments may increase or decrease over time. Variable home loan rates often come with useful home loan features like:
- Offset account or linked offset facilities
- Redraw facilities
- The ability to make extra repayments
- Portable loan options if you move properties
Fixed Interest Rate Home Loans
A fixed rate locks in your interest rate for a set period (typically 1-5 years), giving you certainty with your repayments. This can be valuable for budgeting and financial planning.
Split Rate Home Loans
A split loan combines both fixed and variable portions, offering flexibility and security. You might fix 50% of your loan amount for rate certainty while keeping the other 50% variable to take advantage of rate discounts and offset account benefits.
Interest Only vs Principal and Interest
For those looking to invest in property, an interest only loan can be attractive. With this structure, you only pay the interest charges for a set period (usually up to 5 years), which means lower repayments in the short term. This frees up cash flow for other investments or business loans.
However, if you're purchasing an owner occupied home loan, principal and interest repayments help you build equity faster and work towards financial stability over time.
Maximising Your Mortgage Offset
One powerful home loan benefit is the offset account. This is a transaction account linked to your home loan where the balance offsets the loan amount when calculating interest.
For instance, if you have a $500,000 loan and $50,000 in your offset account, you only pay interest on $450,000. For self-employed professionals with variable income, this feature provides flexibility while reducing interest costs.
Getting Home Loan Pre-approval
Before you start property hunting, obtaining Home Loan pre-approval gives you:
- A clear understanding of your borrowing capacity
- Confidence when making offers
- An advantage in competitive markets
- Time to compare home loan rates from various lenders
Pre-approval typically lasts 3-6 months, giving you a realistic timeframe to secure your investment.
Calculating Home Loan Repayments
When comparing current home loan rates, understanding your potential repayments is crucial. Your repayments depend on:
- The loan amount
- The interest rate (fixed interest rate or variable interest rate)
- The loan term (usually 25-30 years)
- Whether it's interest only or principal and interest
For professionals building a property portfolio through investment loans, calculating home loan repayments for multiple properties becomes even more important for managing cash flow and ensuring you can service all debts comfortably.
Should You Consider Refinancing?
If you already have a home loan, refinancing can help you access better rates, consolidate debt, or release equity for your next investment. With access to home loan options from banks and lenders across Australia, a comprehensive home loan rates comparison could reveal significant savings.
Many borrowers refinance to:
- Secure lower interest rates
- Access home loan features they didn't have previously
- Switch from a fixed rate to variable rate (or vice versa)
- Consolidate their owner occupied home loan with investment loans
Your Path to Property Wealth
Building wealth through property requires understanding the full picture - from deposit requirements and LVR to choosing the right home loan features for your circumstances. Whether you're securing your first home loan or expanding your investment portfolio, having a finance partner who understands self-employed professionals makes all the difference.
At Makara Finance, we work with you to access home loan options from banks and lenders across Australia, ensuring you find the right loan amount, lowest rates, and home loan packages that align with your wealth-building goals. We help you improve borrowing capacity and structure your finances for long-term success.
Ready to take the next step towards securing your financial future? Call one of our team or book an appointment at a time that works for you. Let's discuss your deposit situation and find the right home loan solution for your property investment goals.
