Saving for a deposit isn’t always easy, especially when tending to other living expenses at the same time, such as rent, groceries and raising a family. The end goal is even more difficult to be attained by low-income earners or households relying on one pay cheque.
However, according to Marcus Roberts, mortgage broker and owner of Brighter Finance, it’s still possible to purchase a property with as little as $10k deposit behind you – but with a few restrictions to be kept in mind.
“Most lenders require a 5% deposit in genuine savings, so should you find something under $200k, you may just make it. However, you should expect that the property will be either a studio or small one bedroom in metro areas of Brisbane, Adelaide, or Perth, and that in turn may prove difficult to find a lender,” Roberts says.
This setback can come about from size restrictions; many banks won’t accept properties that are less than 50 square metres. On the other hand, if you are lucky enough to have a parent come on-board, Roberts says having them sign into the loan as a guarantor may assist you in obtaining a more substantial loan to then be able to secure a larger property.
“Guarantor loans can work if you have parents or relatives willing and able, and many lenders look favourably on the extra comfort provided by the guarantor,” he says.
Guarantors assure banks that if the primary lender for any reason forfeits on the loan, they will be able to make up for the payments. Whilst sometimes they are only required to sign into the deposit, some banks need guarantors to be assigned for the total lifespan of the loan.
“In addition, if this is your first purchase and you are planning on living in the property, it's important to understand what's available in your state or territory via the First Homeowners' Grant Schemes,” Roberts shares, with details accessible through the Government’s First Home web page.
Roberts also refers to the Government’s first home super saver scheme, introduced to lift some pressure off first-home buyers by allowing them to save for their deposit within their superannuation account. Whilst it has been up and running for some time now and sign-ups have been on the low, he believes it can still work as a potential alternative to providing a smaller deposit.
“There is a potential risk of the time needed to access any contributions, and it's fairly administratively cumbersome in comparison to a simple savings account, but it may meet your needs,” he says.
If still wanting to work with $10k, it might come down to finding a property over 50 square metres going for under $200k and using it as a stepping stone.
“For example, a studio you live in as your own first home may become an investment once you move up and out to a larger property. The rental yields for some studios may be attractive depending on your circumstances, as many professionals like living alone without flatmates,” Roberts says.
On the other hand, for those seeking to dive into a larger property first, a property joint venture is another avenue worth considering. But whilst the mortgage broker and member of PIPA has witnessed the succession of many property joint ventures, he advises people to think carefully about entering into such an arrangement for the ways in which it will tie them to another party.
“If one party wants to sell and the other one doesn't, how will it work?” Roberts encourages those interested to question.
“If you do go down this path, think about engaging a solicitor to help structure an agreement between the owners.”
Roberts also pitches one “outside the box” option for investing in property with smaller saved amounts, known as fractional property investing.
“In essence, you're buying fractions of a specific residential property with a tenant, costs etc, but you can start for as low as $50,” he reveals.
“You should seek professional advice as to whether this meets your goals, circumstances and objectives, but it is an option for those starting from their first dollar of savings.”