What can you buy with a $25,000 deposit?
Saving for a deposit - particularly on a single income - is a difficult task.
If you've cut back all you can but desperately want to purchase your own home, it can be done for less than you think.
A $25,000 home deposit may be tempting, but the reality is more difficult than it seems.
If you're only putting down $25,000 for your deposit, it's likely that you're only paying a 5% or 10% deposit, rather than the 10% to 20% that many people prefer.
Policies will change between lenders but if you're borrowing more than 80% of the value of your property, you'll most likely be required to pay Lenders Mortgage Insurance (LMI). LMI protects your lender against a loss if they sell your home after you default - essentially making up for the additional risk they take on when increasing the proportional value of your loan.
If you want to put down a small deposit, budget in your LMI payment. The two major LMI providers in Australia, Genworth and QBE LMI, both offer calculators to help you budget in the additional cost. (For more on LMI, see this article.
While your LMI will most likely cost less than an additional 10% deposit, remember that you are not exchanging that sum for equity in your home - once your LMI payment is gone, it's gone forever - and you'll still have to pay that extra 10% you've dodged now to your lender later on (with interest).
Though buying a home with a $25,000 deposit now can speed up the home buying process, keep in mind the benefits of waiting until you're more financially secure before you purchase a home. It may be the case that you're just not ready to purchase yet.
And while it's probably the biggest financial hurdle you face in purchasing a home, the deposit isn't the only cost associated with buying a home.
But if you do have $25,000 in the bank that you're itching to invest, what can you buy? Assuming you need to pay a 10% deposit (and the bank will approve your loan), Property Observer has tracked down some bargain buys. For each of these homes, a first home buyer could expect to pay an additional $3,060 LMI premium, according to Genworth.
Vendors are accepting offers in the mid-$200,000s for this three bedroom Townsville Queenslander. The currently rented house is within walking distance of the Vincent primary school and shopping centre, and is set on a 731 square metre block.
If you want something close to an urban centre, this one bedroom apartment in Melbourne's inner city is on the market for $180,000 plus. Tenanted until February next year at a 9.3% yield ($1,439 per month), the apartment is a ten minute walk to the CBD. However, it's micro sized, with only 32 square metres of floor space.
Another snug apartment is on offer in East Perth, with an asking price of $245,000. The 33 square metre studio apartment is currently rented out at $320 per week.
This two bedroom weatherboard house in the Hunter Valley comes with a price guidance of $230,000. Set on a quarter acre block (1,012 square metres), the house has a lounge room with a separate dining area that could be converted to a third bedroom.