Is 5% a big enough deposit?

In a city where house prices are at record highs and entry into the market seems ever harder to break into how much really is enough to get started? You can borrow up to 95% of the value of a house so based on that have the other 5% and you're good to go, right? Not really.

The issue starts with the "other" costs. Buying a house is a big undertaking and thus involves a few people to make it happen. You'll need a conveyancer (legal specialist), you'll probably want pest and building inspectors and if you're not a first home buyer or are spending more than $650,000 on a property you'll have to pay some amount of Stamp Duty. Assuming no Stamp Duty is payable though I would allow another $2500-$3000 to cover legal, pest and building inspections plus any fees the bank may charge to establish your loan just to be safe.

The next issue is Lenders Mortgage Insurance. I'm not going to go into that much now, I've spoken about this in another article which you can read by clocking the forementioned link. I will mention, it is not always a given that a bank will add LMI to your loan. Generally speaking, up to 95% including a LMI premium is quite available but anything that requires borrowing above 95% can get tricky and your options will be limited.

The way around it may be a personal loan. You can use this facility to pay for your LMI premium if the bank that will accept your application won't fund the premium and if you have a Stamp Duty charge to pay a personal loan can help with this also. If you're now thinking that you should just get a personal loan for all of the costs plus the deposit, great idea but the bank wants to see you are able to save money and a personal loan isn't proving your ability to save. 

Every situation is different, a personal loan is a short term solution but they do still put a dent in your available cash each week. When you're about to take on a mortgage it is very important to consider what effect a personal loan and a mortgage are going to have on your finances and how it will affect your borrowing power with a bank.