How much deposit do I need for my new property? As a general rule, you should aim for a 20% deposit for your new property. Remember, your usable equity that you could put towards a deposit for a new property is 80% of the current value of your home, minus what you still owe on the loan.
To qualify to buy a second home with no deposit, you need the following: To have equity of 10-20% in your existing property. Ideally, owe under 80% of your existing property value. To have a clean repayment history.
If you want to buy a second home with your usable equity, you will need to refinance your property. Refinancing your mortgage involves moving your home loan to a new lender or changing your particular loan product. When you refinance your mortgage, it releases your available equity for your personal use.
However, most lenders allow borrowers to access up to 80% of their property's value minus the outstanding debt.
Refinancing means getting a new home loan. You could get a new 30-year home loan and borrow extra using your equity. You can then use this money to buy a second home. Keep in mind that by doing this you will pay more interest because you're signing up for a new loan, and borrowing money that you've already repaid.
Useable equity is how much of your home's equity a lender will let you borrow. This matters if you're trying to borrow some extra money with a home loan top up or line of credit. Most lenders typically let you borrow around 80% of your home's equity instead of the full amount.
First-time homebuyers can use their parents' equity as a deposit to purchase a new home. Mortgage House loan specialists will guide the homebuyer through the process of adding a guarantor.
A $70,000 annual gross income with a mortgage at 5.99% p.a. equates to a loan amount of up to $391,222. With a 10% deposit contribution, the maximum affordable property price would be $434,691, or with a 20% deposit $489,027.
Home equity loan
Most banks allow you to borrow 80% of your home's equity, but smaller banks and non-bank lenders may let you borrow more. If approved for a home equity mortgage, you will pay higher interest rates than if you refinanced.
Using the equity in your home means the total amount you owe on your home loan will increase, which can result in higher monthly repayments. There may also be restrictions on your home loan that can prevent you from making additional repayments or accessing the equity in your home.
Pay using borrowed equity
The preferable solution for all scenarios where the borrower has property – funds are released from an existing property as an equity release or top-up. These funds are then used for the deposit to purchase a property, and then remaining purchase funds borrowed against the new property.
In recent years, superannuation funds have developed beyond their original purpose as a means of saving money for retirement. Now, your super balance can be used to fund your purchase of an investment property.
A home equity loan could be a good idea if you use the funds to make home improvements or consolidate debt with a lower interest rate. However, a home equity loan is a bad idea if it will overburden your finances or only serves to shift debt around.
Banks are generally comfortable lending up to 80% of the value of your home, minus the amount you owe to the bank. In our example, 80% of $750,000 is $600,000, so the useable equity is $200,000. You may be able to leverage this equity in your home as a deposit on an investment property.
The deposit for a second home
If you have not got a 20% deposit saved up, you may still be able to get a mortgage for your second home by paying LMI or using the equity in your home, if possible. Home equity is the difference between your property's market value and the remaining balance of your mortgage.
Take your home's value, and then subtract all amounts that are owed on that property. The difference is the amount of equity you have. For example, if you have a property worth $400,000, and the total mortgage balances owed on the property are $200,000, then you have a total of $200,000 in equity.
On a $50,000 salary (before tax), you can borrow between $200,000 and $350,000 for the purpose of purchasing a property to live in to be repaid over a 30 years loan term.
Potential homeowners who have a $50,000 home loan deposit prepared have the potential to borrow up to $250,000 depending on the individual mortgage broker or lending specialist. Generally, lenders will require a 20% deposit for a home loan, however, this does vary.
If you make $70,000 a year living in Australia, you will be taxed $14,617. That means that your net pay will be $55,383 per year, or $4,615 per month. Your average tax rate is 20.9% and your marginal tax rate is 34.5%. This marginal tax rate means that your immediate additional income will be taxed at this rate.
“To comfortably afford this you'd need to be earning a minimum income of just over $180,000 – significantly more than the average salary.”
In order to be able to comfortably afford the mortgage repayments on a million-dollar home, you will probably need to make around $160,000. However, if you only make $160,000, you will need to find a lender who multiplies your salary by a factor of 6.25 when assessing your borrowing power.
Buying a home is an important goal for many Australians, and parents can be keen to lend a hand to help their adult children buy a first home. Two common ways that parents or other family members help out older children is by giving them cash for a deposit or acting as a guarantor for their loan.
Rules Around Using Super as Security
First, you cannot use all of your super as security. You must leave some behind as a buffer. This can limit your borrowing power and affect the size of your loan. However, it is put in place to protect your remaining assets in case you default on your loan.
Negative equity occurs when you owe more money on your home than your home is worth. Falling local property values and missed payments can cause negative equity. This is a problem because it can make selling your home or refinancing more difficult.