3 Ways You Can Use to Bridge the Deposit Gap As A First Home Buyer – What to Know

The following 3 methods are a GREAT ways to assist you with your deposit for your first home loan or purchase!

The act of buying a home for the first time is often surrounded by an endless list of questions, ranging from the standard “what’s the best mortgage lender?” to ones outlined with specificity. Out of all the different questions that one may ask about buying a home for the first time, there’s one inquiry that everyone should know the answer to: “How can first home buyers (FHBs) bridge their deposit gaps?

According to a survey conducted by The Genworth First Home Buyer Sentiment report, 7 in 10 recent new home buyers did not completely fund their deposits with money from their savings accounts. Being able to pay a deposit in full outright is often regarded as an occurrence that is quite unheard of, as most first home buyers some type of assistance.

How do FHBs bridge their deposit gaps?

Generally, most FHBs—both recent and prospective—seek financial support from various sources of funding, such as (but not limited to):

  • Government assistance programs, such as a First Home Owners Grant, First Home Loan Deposit Scheme, and the like
  • Parental Guarantor Loans (asking for a favor from mom and dad)
  • Lenders Mortgage Insurance (LMI)

To better understand just exactly how FHBs are bridging their deposit gaps on their dream homes (and how you can fund your own), let’s look at the three most common sources of funding in greater detail:

Government assistance programs

The two most common forms of government assistance programs that FHBs seek out to bridge the deposit gap are the First Home Loan Deposit Scheme and the First Home Owners Grant. Here’s how each one works:

1. First Home Loan Deposit Scheme

Commonly pursued as a means of coming up with a deposit, the First Home Loan Deposit Scheme is used by nearly three in every five FHBs. The First Home Loan Deposit Scheme is an option that works exceptionally well for deposits that are low as five per cent as they help buyers avoid the cost of Lenders Mortgage Insurance (LMI). For this particular scheme option, the government acts as a mortgage insurer who guarantees the mortgage, making for a more secure process for FHBs. It is imperative to act fast if you want to apply for this scheme, as it is set to start in January 2020 and will only be available to the first 10,000 home buyers.

1a. First Home Owners Grant

Although it may be slated as a last resort or minor assistance method due to the fact that it typically is unable to provide a full deposit, the First Home Owners Grant is best as supplementing an FHB’s savings. These schemes differ from state to state but using NSW as an example, first home buyers are eligible for $10,000 rebate for purchasing a brand new apartment up to $650,000.

2. Parental Gurantor Loans

The majority of FHBs who relied on their parents for funding their deposits received help in the form of:

  • Guarantor home loans
  • Gifted deposit
  • Income guarantee home loan

Although it may be slated as the “pampered way out” by some, relying on parental or family assistance has been proven to be one of the quickest and cost-effective ways to seek funding. Seeking parental financial assistance has been shown to cut down the average saving time for a 20 per cent deposit of 11.1 years by as much as 20 per cent.

3. Lenders Mortgage Insurance (LMI)

According to the aforementioned survey conducted by The Genworth First Home Buyer Sentiment, researchers have discovered that more than a third of buyers rely on LMI for funding. On the other hand, nearly a sixth of FHBs have been intending to use some form of LMI as it has been slated to permit paying as little as 5 per cent. The cost of LMI, however, can be quite high as it can be easy to accumulate to tens of thousands of dollars in fees on top of the pre-existing interest and principal. LMI is added to home loans that have less than a 20% deposit being placed.

Buying a home for the first time can be quite daunting, especially when it comes to making sure that you enough to put down a deposit. Take a cue from previous FHBs that are currently enjoying their dream homes and consider one of the three above methods to bridge your own deposit gap!

If you’re a first home buyer looking for ways to bridge your deposit gap or need any home loan guidance in general, reach out and contact us today – we’re more than happy to help you! Contact us on on 02 9121 6247 or submit your scenario online. 

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