As a first-time homebuyer, you are excited to get into a new home and make some changes to your life. You are tired of paying a landlord a lot of money to use their home and having to wait for any upgrades or worrying about the cost of your living situation going through the roof. When you purchase your home, you have your own space and a steady payment to rely on.
Before you can purchase your own home though, you will need to come up with a minimum deposit to help pay down some of the amount of the home. All mortgages, except a few FHA that have stringent requirements, will require a downpayment to help you get the home of your dreams. But how much is going to be required?
Each lender is different, but knowing the minimum deposit and how much you will need to spend can make a difference for helping the first-time home buyer know what they owe at closing.
What is the Minimum Deposit for a Mortgage First-Time Buyer?
Before you look at any properties, it is important to save up for your deposit. This is the amount that your lender will require as a type of security for the mortgage that you get. The minimum deposit for most mortgages will be at 5%, which means that you have to come up with the 5% down and the bank will give you a mortgage for 95% of the price of the home.
Not all banks will accept this kind of deposit from you, so it is important to shop around and see who will be the best mortgage lender to help you out. Many lenders prefer it if you are able to put more down on the home because this limits their risks.
How Much Can I Borrow?
The amount of money that you are able to borrow will depend on your financial situation. You will need to show your current income, along with any debts that you owe and any other assets. This will help the bank determine if you are a good bet for them to give you the loan.
There are different ways that your lenders will look at your salary. At the maximum, lenders will offer:
- For single applicants, they will lend you four times the annual amount you make in a year.
- For a joint applicant, you can get three times your joint salary or four times the first salary plus the second salary.
This will vary based on what debts and more you are bringing to the table. If you have student loan debts or other money problems, then you will need to take that into consideration and the exact amount that you will be able to borrow is going to go up or down.
Whether you can afford a home or not will depend on the area you live in. Some areas are more expensive than others, and if you choose an area with more expensive homes, then your options for homes will be lower. However, if you move to an area with homes that are more affordable, then you will have more choices for less money.
Should I Save for a Bigger Deposit?
Many potential home buyers wonder whether they should save up for a bigger deposit or not. With your first-time buyer mortgage, it is likely that the lender will want you to pay 5% to 10% for the deposit. This helps to offset some of the risks. The larger the deposit that you want to make, the lower the risk you are to the lender, and the easier it is to get the money.
This can lead you to wonder whether the 5% or 10% is enough and if they should save more or not for the deposit. There are benefits to choosing this and some negatives, so you will need to look at some of your finances to determine if this is a good choice.
Some of the benefits of a bigger deposit include:
- A larger deposit means that you are in a stronger position when purchasing. Your interest rates will lower the more that you are able to put down on the home.
- A larger deposit means that you owe less on the home when it comes to your monthly payments, making it more affordable.
- You will have a lower risk of negative equity if the market does go down a little after purchasing the home.
There are also some negatives to saving up a bigger deposit, and there are some situations where it is not the best option for you. Some of the situations where you should not put in a bigger deposit include:
- If you find that home prices rise in the time that you save a larger deposit, the amount you have saved will be reduced compared to the value of the home.
- You could be paying rent while you save up and look for a home. This could be seen as wasting money rather than just jumping into a home at a lower deposit.
Can I Get a 100% Mortgage?
There are a few mortgages that may offer 100% mortgages so you would borrow the full amount of the property and not have to bring in a cash deposit. These are going to be harder to get and many would like you to have a guarantor or someone else who will agree to pay for this mortgage if you stop making the payments.
These are higher risk, and most mortgages won’t offer them because of this.
Preparing for Your Minimum Deposit as a First-Time Buyer
Having a deposit on your home is a smart decision. This shows the bank that you are serious about this mortgage and you have the funds to get things rolling. The higher the deposit you can make, the easier it is to get the loan, but having the minimum prepared can help get you into the home of your dreams too.