What to do when you have a 5% deposit but do not have enough to pay for costs like Stamp Duty and fees.

 If you are not a first home buyer or live in a state like Victoria or South Australia where government stamp duty amounts to 4-5%, then just having the 5% deposit that some banks require is not going to be enough to get you into your next property.

For example, if you are purchasing a property in Victoria for $400,000 as a first home buyer and have saved $20,000 as your 5% deposit, the figures look like this;

5% deposit: $20,000

Stamp duty: $14,307

Misc costs for legals etc: $2000

Total funds required: $36,307

Less First Home Owners Grant: -$7,000

Total own cash required: $29,307

If you have saved up the $20,000 then you are still some $9,000 short on being able to buy your first home in victoria. 

This article briefly explains a couple of options for this scenario.

Option 1: $20,000 Extra on Settlement

MAP has options where lenders will provide/fund an extra $20,000 on settlement to assist with costs like stamp duty, legals etc. This $20,000 is at home loan rates. The key for this loan is that you have 5% genuine savings as your deposit and providing you do, then the lender is prepared to give you $20,000 to assist with the purchasing costs. This is a great option and in some cases would mean that you could borrow 100% and keep your 5% deposit in your bank account to perhaps pay off credit cards, personal loans or other debts.

Option 2: No Requirement for Genuine Savings

There is no requirement that you have to save up the funds to pay for stamp duty and costs. Therefore, you could use a gift, tax return or even a small personal loan to cover these purchasing costs. It is ok to use a personal loan as funds to complete the purchase providing this is fully disclosed to the lender and you can afford both repayments. 

More information on No Genuine Savings Home Loan here.

Option 3: Use a Guarantor

If you have mum and dad who own property and will go guarantor, then this is a great way to be able to use your deposit to pay for the fees and charges. In fact, if you have a guarantor there is no requirement for a deposit at all and the bank will provide 100% of the purchase price plus enough for purchasing costs like stamp duty and legals.

Conclusion:

So if you have the 5% deposit but do not have enough for purchasing costs, or would like to consolidate some debt so you only have the one home loan repayment at home loan interest rates, option 1 and 3 will see you achieve this and into your home and out of the rent trap sooner.