18 Oct Wednesday with a Why: How Much of A Deposit Do I Need As a First Home Buyer?
Thanks Cam for the name recommendation, we’ve officially changed it!
This week we’ve got a question from Chris.
- How much of a deposit do you recommend for first home buyers?
- What do you do with these savings – i.e. leave it in cash, savings?
- What if it’s going to take 3+ years for a deposit?
How much of a deposit do you recommend for first home buyers?
It starts with the price, if you’re a first home buyer you’re not going to be buying a $2Mil property. As a percentage.
Louis says 20%, but Jayden says it’s more about time in the market if you’ve got 5% saved but the trade-off is paying lenders mortgage insurance at least it gets you in as soon as you can. Louis is more cautious as it varies for each individual like doctors who get 95% loans because they can pay them down quickly. If you’ve recently gotten into a high-income occupation, you can get a bigger loan.
Where should I invest the deposit short term?
Typically the short term is from today to 2 – 3 years out. With any investment, if it’s needed in the short term, while it sucks, cash is still the best and safest place. You don’t want to put it into the market if you’re potentially going to lose it. That’s why cash does make sense. You need to look at the expected return, cash has interest and there’s no chance you will put your money in and it will half in value, whether shares aren’t like this, in the short term you don’t know what will happen.
What about for a timeframe over three years?
In three-plus years, you could look at more growth orientated investments, but I wouldn’t put 50 – 50 outside of cash, maybe a bond for 3 -5 years would be good which would pay a higher income and retain a fair amount of cash. If it’s something where you know you’ve got three years before you use it, it’s best not to put it into the market.
Don’t forget to send us your questions!