Can I really afford a deposit for my first home?
Yes, you can. Despite what you may have heard, it’s still possible to get on the property ladder, and there are several ways you can get there.
Check out our guide to borrowing with a small deposit to start with, and then read our recommendations on how to buy a house.
Before you know it, you’ll be well on your way to saving the deposit you need, and owning the home you deserve.
What does LTV mean?
LTV stands for ‘Loan to Value’. This is the amount of mortgage you have, versus the value of your house.
How do you calculate your LTV?
First, you need to work out how much mortgage you need to borrow. Do this by taking the value of the house, for example $250,000. Then, minus the amount of deposit you put down - for instance, $50,000. So you’d need to borrow $200,000.
To calculate the LTV, you divide the amount you need to borrow ($200,000) by the value of the house ($250,000), which gives you 0.8.
$200,000 ÷ $250,000
= 0.8
Times this by 100 and you get 80%
0.8 x 100
= 80% LTV
So, if you buy a house for $250,000 with a $50,000 deposit, borrowing $200,000, your LTV is 80%.
Why does LTV matter?
When it comes to finding the right mortgage for you, the lower your LTV, the more options will be available to you, as you’ll be considered a ‘low risk’ borrower.
Can I get a loan for my deposit?
Unfortunately not, as this is frowned upon by lenders. A mortgage is lent to you based on what payments you can afford on a monthly basis, plus the deposit you put down.
If you have to take out a loan for the deposit, it suggests you can’t really afford the property in the first place.
If you can’t afford the deposit, you might want to consider having a mortgage guarantor who could help you with this. We also recommend you speak to a mortgage broker so you have a clear idea of what your options are.
What’s the risk of losing my deposit?
When you make an offer on a house, it can take weeks or months for all the legal and financial paperwork to be carried out. You need to send your deposit to your legal company so they can exchange contracts. This guarantees your purchase and protects your deposit, should the sale fall through after exchange.
If the sale falls through prior to exchange, you might still be charged for any finance and legal work carried out, but you won’t risk losing any of your deposit money.
If the sale falls through after exchange, because you change your mind and pull out, then the seller will keep your deposit, as per the contract.
Property purchases can fall through prior to exchange, but it’s rare for there to be a problem after contracts have been exchanged.
How do I get a deposit back if my purchase falls through?
When you exchange contracts, this means that the buyer and seller are legally committed to the purchase and sale of the property.
If you’ve already exchanged contracts and then the purchase falls through because the seller has dropped out, you’ll get your full deposit back from your legal company.
How can I make buying a house less stressful?
It’s totally normal to experience anxiety when buying a house. Fortunately, that’s why there are mortgage advisers like us on hand to help out.
Part of our job, alongside providing advice, is to take that stress and worry off your shoulders.