How do I raise a deposit?

There's no doubt that the biggest obstacle for a first home owner is raising the deposit. The size of the deposit needed depends on which financial institution you chose to go with. Most of the big banks traditionally require approximately 20% of the property price as a deposit. On the other end of the scale, some credit unions and smaller lenders require only up to 5%. Now the good news is that nowadays, you don't even require a deposit! An increasing number of lenders are offering 100% loans which means the only saving you have to do is for the loan application fee and other associated start-up costs.

This all sounds great in theory and the major benefit of this is that you don't need to wait as long to enter the property market in which time prices may go up but... ..wait for it, there are downsides which you need to be aware of. The main downside is that it is likely you will be subject to higher costs and a higher, more stringent degree of credit checks. The reason for this is because the lender is taking on a bigger risk in lending you 100% of the property price value.

Again, we at Ratedetective.com.au need to emphasise the need to understand all the frills associated with each type of home loan. If the property market looks like it's about to go into a boom cycle and you don't have the dollars to afford a home deposit, then a 100% home loan is a good way to get into the market without missing the cycle, however be aware that your ongoing costs are likely to be higher. For example, you may pay $1000 more per year in fees this way but in that year the value of your property may have increased by $10,000!

At the end of the day, no deposit loans can be a very clever way to get into the market and there is no reason why they cannot work for you. Check out Ratedetective.com.au/home-loans to find out what's out there.

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Published on May 5-th, 2007 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
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