$80,000 is a lot of money. When you have rent and bills and groceries to pay for, it’s not easy to save that much. Some lenders understand this and to help you get into your own home faster, will allow you to borrow more than 80% of the property’s value. Some will offer up to 95%. This means your deposit will be 5%, plus the associated purchase costs. Based on the $400,000 property example above, 5% would be $20,000 - a bit more doable.
But of course, a smaller deposit comes with greater risk. If interest rates rise or unexpected expenses pop up and you’re borrowing at maximum capacity, you could get caught short. Because there’s a greater risk, you also have to pay Lenders Mortgage Insurance (LMI)
Lenders Mortgage Insurance (LMI) is insurance to protect your lender if you have trouble with your repayments in the future. LMI can be an added expense when you’re buying your home, but you can avoid it if you save more than 20% of the value of your property to pay as a deposit.
for any deposit under 20%. LMI is paid to the bank’s insurer to cover the bank in the event you default on your home loan (borrowings above a loan to value ratio of 80/20 are considered ‘higher risk’). You can pay your LMI as part of your deposit, or depending on how much LMI you have to pay, you can add it to your Home Loan.