When buying a property, size does matter when it comes to your deposit. The larger the deposit you have saved, the greater your chances of receiving finance approval and the terms may prove more favourable. However, if you are looking to purchase an investment property, you don’t necessarily have to have a 20% cash deposit sitting in your bank account and there are other options available to you.
Investor Assist took a few moments to speak to Don Crellin, General Manager of Resolve Finance, to gain a better understanding of whether ‘size really does matter’ when it comes to saving for a deposit for your investment property.
Q. Hi Don, thanks for your time. Can you start by telling us if the deposit criteria differs for owner occupiers compared to investors?
Regardless of your reason for purchasing a property, your finance application will generally be looked upon more favourably if you have a larger deposit. The size of your deposit is one of the factors taken into account within the credit assessment process. Generally, the larger the deposit, the better.
Q. What sized deposit is generally required by lending institutions from investors?
Lenders will vary in regards to their credit policies but it is possible to start with as little as 5% deposit or you can use the equity in an existing property to borrow 100% of the purchase price plus associated costs.
However, if you do not have equity in an existing property and you are seeking the borrow more than 80% of the value of the investment property, you will be required to take out compulsory mortgage insurance.
To avoid the costs associated with mortgage insurance, a 20% deposit is required.
Q. Will the size of my deposit affect the costs associated with mortgage insurance?
Yes. The smaller the size of your deposit, the greater the costs of your mortgage insurance. In addition, you may be eligible for more favourable lending terms such as discounts on your interest rate.
The costs associated with Mortgage Insurance are usually tax deductible for investors but as previously mentioned, if you are trying to minimise the lending costs by avoiding mortgage insurance, a 20% deposit is required.
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For more information on this topic please contact Resolve Finance via this link.
DISCLAIMER:This information is of a general nature only and does not constitute professional advice. We strongly recommend that you seek your own professional advice in relation to your particular circumstances.