Investing in real estate is a proven strategy for building wealth in Australia, but one of the most crucial steps is understanding how much deposit you need. The deposit amount can impact loan approvals, interest rates, and overall investment success.
How Much Deposit Do You Need?
The deposit amount required for an investment property varies based on several factors. Generally, lenders in Australia require:
- 20% of the property value if you want to avoid Lenders Mortgage Insurance (LMI).
- 10-15% deposit if you’re willing to pay LMI, which protects the bank but adds extra costs. Victorian Homebuyer Fund: Everything You Need to Know(Opens in a new browser tab)
Can You Buy with Less Than 20% Deposit?
Yes! Though 20% is ideal, many investors get started with as little as 5-10%. However, doing so comes with certain trade-offs: (First Home Buyers Rejoice! 5% Deposit Scheme Now Open)
- LMI Costs: Taking a loan with a lower deposit means paying for LMI, which can add thousands to your loan.
- Higher Interest Rates: A lower deposit can mean riskier borrowing, leading to increased interest rates.
- Loan Approval Challenges: Some banks have stricter lending policies for investment properties.
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Using Equity as a Deposit
If you already own property, you might not need to save for a deposit at all. Many investors use their existing home equity as security instead of saving a cash deposit. This strategy allows:
- Faster access to investment opportunities.
- No out-of-pocket deposit required.
- The ability to purchase multiple properties over time.
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Government Incentives and Assistance
While first-home buyers get more support, investors can still benefit from schemes like:
- The First Home Loan Deposit Scheme (if buying as an owner-occupier first).
- Using Self-Managed Super Funds (SMSF) to purchase investment properties.
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Final Thoughts
Your deposit size affects multiple aspects of your investment journey, including borrowing power and overall loan costs. Whether you’re using cash savings or leveraging equity, it’s crucial to consider all financial options before purchasing an investment property.
Want to explore your options further? Speak to a mortgage broker or financial advisor to determine the best deposit strategy for your situation.