Low Deposit Home Loans
What’s The Catch?
Nonetheless low deposit home loans are still out there and available. Having said that though, it pays the property purchaser to do their homework as the terms, conditions, fees and charges for a low deposit home loan can vary widely from lender to lender.
Do I Need For A Home Loan?
However, that’s not all there is to it. So be very alert when you ask the bank or your mortgage broker, how much deposit do I need for a home loan? Because, it will save you time, money and embarrassment if you get all the facts?
Unfortunately for many first time home buyers who work diligently and save hard for a 5% home loan deposit, they find that when they get there it’s still out of their reach. This is because no one told them that they would have to factor in things like purchase costs and lenders Mortgage insurance.
Much Deposit For A Home Loan?
Again, you will need to carefully configure how much cash you will need in your bank account before getting a home loan.
The reality is once your loan amount exceeds 80% of the value of the property you want to buy, then the banks will start charging you Lenders Mortgage Insurance. This insurance protects the bank, not you in the event you default on your mortgage. However, oddly enough you have to pay for it.
The lower your home loan deposit is to purchase property, then two words become even more important to you because they’re going to cost you money. Those two words are Lenders Mortgage Insurance (LMI) and Loan To Value Ratio (LVR).
As the LVR percentage of your loan increases (as the loan amount increases percentage wise to the value of the property) then the LMI fee will also start to increase. This fee can amount to many thousands of dollars. The higher this fee goes the more it can restrict the amount of money some people can borrow.
The hard truth is, whether you’re looking at 95% home loans or 97% home loans you’re going to need more than a 5% deposit saved. This is because when you borrow more than 90% of a property’s value the LMI fee will be quite steep on most loans.
For example when we look at how much home loan deposit is needed for 97% home loans it calculates out to approximately an 8% deposit. In other words the bank will lend you 92% of the property’s value and the balance that makes up the 97% of the rest of the loan will be their LMI fee.
Also, if you’re looking to buy established property with a low deposit home loan there is still the purchase costs (State Purchase Stamp Duty and Legal Fees) that have to be accounted for on top of everything else we just discussed.
What’s Best For Me?
Once they thoroughly understand your situation they can find the right low deposit home loan to match your needs, desires and savings.
Home Loan Work?
The bank will take security over two properties, the one you’re purchasing and the one the home loan guarantor owns.
Some lenders guarantor home loan policies allow the total loan amount to cover the total cost of purchasing the new property. Although some will allow it, most lenders will require the primary borrower to have at least a 5% deposit.
Nonetheless, the good news is a guarantor home loan in most situations will allow the new borrower to avoid having to pay Lenders Mortgage Insurance (LMI).
Nevertheless, a home loan guarantor should proceed with caution before committing to a guarantor home loan. All lenders will insist that home loan guarantors seek legal advice so they’re properly informed about the down side risks associated with guarantor home loans.
Low Deposit Home Loans
The toughest assessment by far is done by the mortgage insurance company and before applying for a low deposit home loan check the following list to improve your chances of a successful approval.
Clean Credit Report:
Get a copy of your credit report in advance and confirm that there are no black marks on it at all. Ensure all of the payments for your personal loans, credit cards, rent and any other debts have been paid on time
Healthy Income Stream:
Keep in mind that both the bank and especially the mortgage insurer are going to want to hedge their bet on you by making sure that you won’t have any problems making your required repayments
Good Employment Record
You will need to have been on the job for at least 3 months (any probationary period would have to have been completed). Additionally, the mortgage insurance company will want to see that you have had a previous stable work history in the same industry
With all low deposit home loans that require LMI you will need to provide evidence that you have 5% genuine savings
You will generally need to prove that you have saved 5% of the purchase price over a three month period (there are a couple of exceptions to this rule).
Keeping Minimum Debt Levels
Low home loan deposit applicants who have a lot of credit cards as well as personal loans usually have a hard time obtaining approval for a home loan. As a rough rule of thumb, if credit card and personal loan debt exceeds 7% of the target property purchase price then low deposit home loan applications are usually declined as too risky.
Reasonable Amount of Assets
The lender and the mortgage insurer will give you some brownie points if you already have some assets and that you haven’t been frivolously spending all of your money.