When it comes to buying an investment property in Australia, one of the most important questions that many potential investors ask is: "How much deposit for investment property?" Understanding the deposit requirements is essential because they directly affect your ability to secure financing for your investment property.
For most Australians, the minimum deposit for investment property in Australia typically sits at 20% of the property’s value. However, deposit requirements can vary depending on factors like the type of loan, the lender, and your individual financial circumstances.
Deposit Factors Impacting Investment Property Purchases
At Stryve Finance, we help clients navigate these deposit requirements for investment property and secure the best home loan deals. This article will guide you through the key deposit requirements in Australia, covering everything from the minimum deposit needed to the different ways you can fund your deposit.
What is an Investment Property?
Before we dive into how much deposit you’ll need, it’s important to understand what an investment property is. Simply put, an investment property is a property purchased with the intention of generating income or capital gains, rather than being used as a primary residence. These properties are typically rented out to tenants, providing a steady stream of rental income, or they are held long-term in hopes of price appreciation.
An investment property differs from an owner-occupied property in that lenders consider it a higher-risk loan. This is because the borrower doesn’t live in the property and, in some cases, may be more likely to default on payments. As a result, deposit requirements for investment properties are often higher compared to those for a standard home loan.
In Australia, investors often seek properties that will not only provide rental income but also offer potential for capital growth, resulting in an increase in property value over time. With this in mind, understanding the deposit required for investment property becomes crucial to starting your investment journey on the right foot.
Tip:
Know the difference between investment properties and owner-occupied homes, this will influence your deposit requirements and the loan types available to you.
Minimum Deposit for Investment Property in Australia
One of the first questions most investors have is, "How much do I need for an investment property deposit?" In Australia, the general rule of thumb is that you will need a minimum deposit for investment property of at least 20% of the property’s value. This means that if you’re looking to buy a property worth $500,000, you should ideally have a deposit of $100,000 saved.
The deposit required for investment property may vary slightly depending on the lender and your financial situation. However, banks typically prefer a deposit of at least 20% to avoid having to pay Lenders Mortgage Insurance (LMI), which protects the lender in case of default.
If your deposit is lower than 20%, you may still be eligible for an investment loan, but it will likely come with additional costs.
Minimum Deposit for Investment Property
| Property Value | Required Deposit (20%) | With Lenders Mortgage Insurance (LMI) | Total Deposit + LMI (Estimated) |
|---|---|---|---|
| $300,000 | $60,000 | $5,000 (Approx.) | $65,000 |
| $500,000 | $100,000 | $10,000 (Approx.) | $110,000 |
| $700,000 | $140,000 | $15,000 (Approx.) | $155,000 |
| $1,000,000 | $200,000 | $25,000 (Approx.) | $225,000 |
Lenders Mortgage Insurance (LMI) can be costly, often ranging from several thousand dollars to tens of thousands, depending on the size of your loan. LMI is typically added to your loan balance, which means you’ll pay interest on the insurance premium over the life of the loan..
It’s also important to note that some lenders may require a higher deposit for higher-risk properties, such as those in regional or less desirable locations. In these cases, the deposit for investment property could be as high as 30% or more.
At Stryve Finance, our team of mortgage experts will work with you to determine the precise deposit amount based on your financial situation and investment goals. We’ll also guide you through the entire loan application process, ensuring you get the best terms available.
Factors That Affect Your Deposit
While the standard minimum deposit for investment property in Australia is generally 20%, several factors can affect the exact amount you need to save.
Let’s take a closer look at the key elements that influence your investment property deposit requirements:
1. Lender Requirements
Each lender has its own set of criteria for assessing mortgage applications. Banks and other financial institutions may have different deposit requirements based on your credit history, income stability, and even the type of property you’re purchasing. If you have a strong credit history and a stable income, you may be able to negotiate a lower deposit or better loan terms. However, if your credit score is lower, lenders may require a larger deposit to offset the perceived risk.
2. Loan-to-Value Ratio (LVR)
The LVR plays a significant role in determining the deposit you need. The LVR is the percentage of the property’s value that the lender is willing to lend you. For instance, if you want to borrow 80% of the property value, you’ll need a 20% deposit. If the LVR is higher (e.g., 90%), your deposit will be smaller, but it may trigger additional costs, such as Lenders Mortgage Insurance (LMI), which protects the lender in the event of default.
3. Property Type and Location
The type of property you wish to purchase can also influence the deposit required for investment property. New properties or off-the-plan developments may come with stricter deposit requirements due to lenders’ higher perceived risks. Similarly, properties located in high-demand areas with a strong market history may have more lenient deposit terms. In contrast, properties in remote or less stable regions may require a larger deposit to secure the loan.
Alternative Deposit Options
If saving a 20% deposit for an investment property deposit feels daunting, there are alternative ways to fund your deposit, depending on your financial situation. Here are a few options to consider:
1. Using Home Equity
If you already own a home or another property, you may have built up equity that can be used toward your investment property deposit. Home equity is the difference between your property’s value and the amount you owe on it.
For instance, if your home’s market value is $600,000 and you still owe $300,000 on your mortgage, you have $300,000 in equity, which is the amount you can potentially use as a deposit for an investment property.
Lenders typically allow you to borrow up to 80% of your property’s value, which means you could access a portion of your equity to fund the deposit for your investment property. This is a popular method for homeowners looking to invest without needing to save up a large deposit.
2. Government Schemes
There are several government schemes designed to help first-time buyers and investors save for a deposit. Some of these schemes offer grants, while others provide tax breaks or stamp duty exemptions.
Researching government programs in your state or territory can uncover valuable options, such as grants or stamp duty exemptions, which can significantly reduce the amount you need to save for your investment property deposit.
3. Low Deposit Loans
Some lenders offer low deposit loans for investment properties, allowing you to secure a loan with a deposit as low as 10% or even 5%. However, these loans often come with higher interest rates and require Lenders Mortgage Insurance (LMI). Low deposit loans can be beneficial if you have the income to support the loan, but it’s important to understand the additional costs of LMI and higher interest rates.
At Stryve Finance, we can help you explore these alternative funding options, ensuring that you find the best strategy for your investment goals.
Tip:
Start early and consistently save for your deposit by budgeting, setting clear savings goals, and taking advantage of windfalls like bonuses or tax returns.
Deposit Calculators and Tools
Once you’ve figured out how much deposit you’ll need for your investment property, using a deposit calculator can give you a clearer picture of the financial requirements. These online tools help you estimate the potential deposit required for investment property based on the property price and the LVR you’re aiming for.
1. Deposit Calculator
Deposit Required by Property Price
A deposit calculator is a simple yet effective tool that allows you to input the property’s price and desired LVR to calculate your required deposit. For example, if you’re purchasing a property valued at $600,000 with an LVR of 80%, the calculator will show that you need a $120,000 deposit.
2. Borrowing Power Calculator
In addition to a deposit calculator, a borrowing power calculator is another useful tool that helps estimate how much you could potentially borrow based on your financial situation. It considers factors such as your income, expenses, existing debts, and the size of the deposit you can provide. This tool can give you a better understanding of the price range for properties you can afford and help you plan for your deposit accordingly.
At Stryve Finance, we provide our clients with a borrowing power calculator. These tools enable you to plan your purchase more accurately and understand the associated financial commitments.
Why Choose Stryve Finance as Your Mortgage Broker?
At Stryve Finance, we understand that navigating the world of investment property deposits and securing the right loan can be a daunting task. That’s why we’re here to help you every step of the way, ensuring that you not only meet your deposit requirements but also secure the most suitable loan for your investment goals.
1. Access to a Wide Range of Lenders
As an experienced mortgage broker, we have access to a wide range of lenders, including major banks, credit unions, and non-bank lenders. This enables us to identify the most competitive rates and the best loan products tailored to your specific needs.
2. Personalised Advice
Every investor’s financial situation is different. Whether you’re a first-time investor or looking to expand your property portfolio, our team will provide tailored advice to ensure you get the best deal. We take the time to understand your financial position, goals, and concerns so that you can make an informed decision.
3. Expert Guidance on Deposits and Loans
The deposit required for an investment property can vary based on numerous factors, but with our expert guidance, you’ll have a clear understanding of how much deposit you need and the best ways to fund it. We’ll help you explore all the options, whether it’s using savings, home equity, or government schemes, and ensure you choose the best approach for your situation.
4. We Handle the Paperwork
The loan application process can be time-consuming and complex. At Stryve Finance, we take the stress out of the process by handling all the paperwork and liaising with lenders on your behalf. Our goal is to make the process as smooth and efficient as possible, so you can focus on finding the right investment property.
Conclusion
In summary, the minimum deposit for investment property in Australia is generally 20% of the property’s value. Still, several factors, such as your credit score, property type, and lender’s requirements, can affect the exact deposit required. Whether you’re using savings, home equity, or exploring government schemes, it’s essential to plan and understand all the associated costs.
With Stryve Finance by your side, you’ll have the support and expertise needed to make the right decisions for your investment. From understanding investment property deposit requirements to securing the best loan, we’re here to help you achieve your property goals.
Ready to start your investment property journey? Contact Stryve Finance today to discuss how we can help you navigate the deposit and loan process.
Dylan Bertovic is the Director and Senior Finance Broker at Stryve Finance, specialising in non-traditional lending solutions. He helps clients across Australia with tiny home loans, construction finance, equipment and asset lending, refinancing, and investor loans. With deep expertise in self-employed and renovation mortgages, Dylan is known for crafting tailored strategies that get results
