How much do I need to buy a property?
One of the key things you need to know before investing in property is the amount of money you will need. Much of this will be dependent on your own situation – the actual property you are looking at or the suburbs you have selected. That said, there are other considerations that will impact anyone looking to invest. This is the first of two posts that will look at initial costs of property purchase.
The first thing to consider is how much you are providing for the initial deposit. This is very important because the larger the deposit, the less you have to borrow and the more secure you will appear to any lender.
Your deposit will determine the LVR – loan to value ration and LMI – lender’s mortgage insurance.
The LVR is determined by a comparison between the amount you have to borrow and the value of the property. If you have $100,000 deposit for a property that is going to cost $600,000 you will need to get a loan for $500,000. This makes the LVR 83%.
The LMI is a policy which protects the lender should the borrower default. The lender may make LMI a condition of the loan and while it is generally added into the mortgage, you need to be aware that it can add thousands to a mortgage. To avoid LMI, the deposit needs to be at least 20% (in the example above with a property valued at $600,000, the deposit would need to be at least $120,000). The table below gives a clear indication of how a smaller deposit can increase the mortgage through higher insurance costs.
Value of the property 5% deposit 10% deposit 15% deposit $500,000 $16,245 $8,775 $4,887 $550,000 $23,983 $9,653 $5,376 $600,000 $26,163 $13,392 $6,732 $650,000 $28,343 $14,508 $7,286 $700,000 $30,524 $15,624 $7,854
Source: Quotes taken from ratecity LMI calculator, correct as at 10 January 2018.
These are just some of the costs associated with buying a property, contact Accrue Real Estate for further information and help in understanding every aspect of investing in property.