FHB - save up a bit more to get to 20% dep or go with 10% dep + LMI?

Just wondering if I should keep on saving towards a 20% deposit or if I would even qualify for a mortgage right now. My situation:

• I currently have $50k in cash(all my own genuine savings), $43k in shares(mostly index ETFs that I'm happy to sell to increase cash).
• I'm working as an IT contractor(PAYG arrangement), my take-home pay can range between $0 per month to anywhere between $3000 to $7000 per month.
• I was a bit undisciplined with savings previously, but have now gotten a better handle on my budget, and have consistently saved $2k per month on average in the last year.
• My current contract is ending in approx. 6 weeks, I'm lining up a new one to start before EOFY, but may have a downtime of a month or two.
• I live in Melbourne CBD, renting a 1-br flat for just under $1570 per month, I'm very happy in this building, so honestly am a bit reluctant to move out and would prefer to rentvest, but will move if it's better to get FHB benefits.
• Have never bought a property before, but am anxious to get on the market in VIC(though open to investing in SA or QLD if there are stable tenants that can be found). Thinking mostly of VIC because of the latest news about stamp duty relief for FHBs.

From online calculators, I feel I can afford $370k at most for a property. I'm a bit hesitant about using up all my cash and shares for a deposit, given I'm still building up my contracting experience, so I'd like a bigger emergency fund for in between contracts, and would prefer a cashflow-positive investment while I grow my career in the next 2-3 years.

Will I even qualify for a mortgage right now? Should I wait until I have at least $100k cash and worked for longer than 6 months at any one place? (this could take me 2 years or more)
Or should I plunge in with 10% deposit + LMI after EOFY?

 

Hi @noob1e and welcome to the forum.

Firstly for a situation like yours I would ignore those online calculators - they are generally only accurate for very simple situations. You're probably going to have to talk to someone and have them look at your situation in a bit more detail to get an idea of your borrowing power.

Personally I'm not too worried about paying LMI on an investment property, but I would try to avoid on a property I plan on living in long term. Try to get the LVR to be below 88% before LMI and you will be surprised how low LMI can be at the price range.

 

Personally - I don't see LMI as being the end of the world. You can buy more with less - and the surplus cash can go into an offset for future opportunity/emergencies. It also gets you into the market sooner (important if buying into a rising market - not so much of an issue if prices are stagnant/falling).

LMI on that level of borrowings won't be too high either.

Cheers

Jamie

 

If you're paying rent and you're buying a PPOR, you may as well pay LMI as it's probably the same amount of money (if you wait to save the full 20%)

 

Consider it a cost of doing business.

 

Take the LMI now - don't see lending losing up anytime soon. Keep the $$$ in offset for future use and SANF

 

Personally, I'm not a fan of paying LMI for a PPOR for 2 reasons:

1. It's non-deductible since it's for a PPOR.
2. Your higher LVR means higher non-deductible debt due to larger loan.

If it's for an IP that's a different situation due to deductibility etc...

Another thing to consider is Stamp Duty as VIC is the highest in the country I believe. This can be quite substantial so think carefully about concessions for 1st home buyers & how that might be one benefit of PPOR route. IMHO, the minimum 10% (or 12% as stated above to reduce LMI) + costs is my preference for an IP (20% for PPOR) ..... many will argue to borrow the maximum & capitalize costs BUT that is a very high leverage & higher risk. I do not subscribe to such approaches. Each to their own.