Savings and How They’re Split Between a Deposit and Stamp Duty

Buying a home is an empowering journey, and understanding how your deposit will be used is a key part of it. This knowledge empowers you to budget effectively and avoid unexpected expenses. In Australia, your deposit not only contributes to the property purchase but also covers other essential costs.

What Your Deposit Does

Your deposit is your personal contribution toward the property’s price. The more you save, the less you’ll need to borrow from a lender. A bigger deposit can also mean:

• A lower loan-to-value ratio (LVR), which could get you better loan terms.
• Avoiding Lenders Mortgage Insurance (LMI) if your deposit is at least 20% of the property price.

Where Your Deposit Goes

Here’s how your deposit is typically used during the buying process:

1. Contract Deposit: When you sign the purchase contract, you’ll pay part of the deposit upfront (usually 10% of the purchase price, but this can vary). This amount is held in trust and shows you’re committed to the purchase.

2. Settlement Payment: At settlement, the rest of your deposit is combined with your home loan to pay the total price.
   For example:

   • If the property costs $500,000 and you have a 20% deposit ($100,000), you might pay $50,000 upfront as a contract deposit.
   • The remaining $50,000 is paid at settlement, along with the $400,000 from your loan.

Other Costs Covered by Your Deposit

Your deposit may also help pay for extra costs like:

• Stamp Duty: A government tax on property purchases. It varies by state and property value, but first-home buyers may get discounts or exemptions.
• Lenders Mortgage Insurance (LMI): Required if your deposit is less than 20%. It can be expensive and is often added to your loan.
• Legal and Conveyancing Fees: These cover things like property searches and contract reviews.
• Building and Pest Inspections: To check for structural problems or pests before you buy.
• Loan Fees: Lenders may charge fees to process your home loan application.
• Mortgage and Transfer Fees: Government charges for registering your mortgage and transferring ownership.
• Home Insurance: Most lenders require building insurance before settlement.
• Moving Costs: For transporting your belongings to the new home.
• Utility Connections: Fees for setting up electricity, gas, water, and internet.
  Council Rates and Strata Fees: These are ongoing costs for local council services or building management (for apartments).
• Repairs and Maintenance: After you move in, set aside funds for fixing or maintaining the property.

Tips to Make the Most of Your Deposit

To use your deposit effectively:

1. ** 20%, 10%, or 5%?**: Run scenarios to see how far your deposit will go. You might not need 20%, and 10% or 5% could work for you.
2. Check for Government Help: Look into grants or schemes like the First Home Owner Grant, which can boost your savings.
   By planning for costs beyond the property price, you can ensure you’re not caught off guard. This foresight will make you feel prepared and in control of your home-buying journey.

Understanding how your deposit is split and preparing for other costs will help you feel more confident and in control of the home-buying process.

Note: Costs and rules vary depending on your situation and state. It’s always a good idea to get advice from financial and legal experts.