For prospective home buyers, finally seeking out a loan after years of saving can be an exciting time. All the scrounging and sacrifices are finally set to pay off as the numbers in the account finally begin to resemble a down payment on a new home…but is it really enough?

Many ambitious individuals are surprised and frustrated that they find themselves unable to easily secure financing for a new home, often because they have insufficient funds or the required down payment on a suitable loan turns out to be higher than expected. For this reason, it is important to establish a concrete goal based on your individual situation, and doing this begins with understanding the purpose of a down payment on a home loan.


Why Do I Need a Deposit?

Simply put, the deposit on your home loan serves to give the lender more information about the individual they’re doing business with. Not only does the amount of the loan give the lender an idea of your resources, but regular savings placed into an account over a period of months or years lets the bank know that you have a regular income and can be consistent in satisfying your obligations.

The deposit amount also indicates what level of risk the lender is taking on by offering you a loan, and this impacts the assessed interest rate along with giving the borrower more leeway to negotiate. A larger deposit also affords a prospective homebuyer a larger choice of lenders, who will be more inclined to offer preferable rates for the assurance of a reliable customer.

A larger down payment has direct benefits for the borrower as well, as it reduces the size of the principal and resulting interest, resulting in a less expensive loan overall. You can read more about the Homestart first home owners grant on their new web portal.


How Much Do I Need?

Besides the amount of the loan, there are also other common fees that must be satisfied during the home buying process, and it is wise to figure these costs into the total amount needed before seeking out a home loan as well.

These expenses include legal costs, inspection costs, and various types of insurance such as builders’ and personal belongings insurance to protect your home and those working on it throughout the process. For this reason, it’s a good idea to hold off on applying for a home loan until you have at least 10 to 15 percent of the total base price of your desired home in order to get the most sustainable terms.

Getting a home loan from a bank is a good way to make the path to homeownership shorter, but there are still steps that need to be taken to get off to the best start. Bringing a sizable deposit to the negotiating table when discussing a home loan with a lender gives a prospective buyer the most valuable resource in the home buying process: options.