If you want to buy a house using a mortgage then most lenders will require that you have a deposit. They want you to pay a portion of the cost of the house for two main reasons. They want to make sure that if they have to repossess and sell the house, that they will be able to get their money back even if the house is worth less than if you bought it. They also want to see that you are capable of being responsible with money which will mean that you are more likely to be able to budget well so that you can repay the loan and cover the monthly payments that are needed. But how much do you need to save up?
Check with the Lender
Lenders will vary in how much money they expect you to pay towards the mortgage. On average it is probably 10% but some may be 5% and there have even some that have offered a mortgage with no deposit at all. You may have a particular lender in mind and therefore you can check out what their requirements are. Otherwise have a look at some of the lenders you are likely to consider and see what they are asking too. It is worth having an idea of what you are likely to need.
Consider the Cost of the House
Of course, the actual amount of money you need will be determined by the price of the home that you are buying. You may have an idea of the size of home and location and so could look on local estate agents’ websites to find out how much a home is likely to cost in the area. You could also find out how much a lender is going to lend you. They will often have some sort of formula depending on whether the person borrowing the money is doing it singly or jointly. It might be up to four times your income but it will vary a lot. So, find out this as well and it will help you to consider how much you will be borrowing.
Consider Using More
It is worth noting that the more you borrow, the more you will have to repay and the more interest you will pay. Therefore, it is in your interest to borrow the lowest amount possible. So, if you can save up a higher deposit, you will not need to pay out as much money as you can borrow less. However, it may also help you to borrow more money. If you have a more expensive home in mind, then by having more money than is required for the deposit, you will be able to get a more expensive property than you would otherwise be able to get.
So, whether you should save a huge deposit will depend on a lot of factors. If you want to pay less interest and borrow less, then having a larger deposit can help with this as long as you do not spend too much on your home. If you do want a more expensive property than you can get based on the amount of mortgage you can borrow, then you will need a larger deposit to be able to afford it.
It can be wise to just save up as much money as you can and then you will be able to use it to your advantage when you are buying a home. It could even be well worth starting to save up when you are very young so that by the time you want a home you have accumulated a significant amount of money.