Low Deposit Home Loans
Low Deposit Home Loans!!! –
What’s The Catch?
Prior to the Global Financial Crisis (GFC) low deposit home loans and no deposit home loans were readily available to home buyers and property investors alike.
You could even get 100% and at times 105% loans to buy property. However, as a consequence of the GFC, lenders have tightened up their lending criteria considerably. 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.
So Really, How Much Deposit Do I need
For A Low Deposit Home Loan
Most lenders require low deposit home loan borrowers to have a minimum of 5% genuine savings.
This means you must have at least 5% of the purchase price of the property you want to buy, as a home loan deposit in a savings account. An additional requirement is that you are able to document that you have saved that amount over a period of three months, or alternatively the total amount of the required home loan deposit has been in the savings account for at least 3 months.
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 frustration if you get all the facts?
How Easy Are Low Deposit Home Loans?
5% Deposit Home Loans:
At first glance it seems so simple, all you have to do is save 5% of the purchase price of the property you want to buy, right?
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.
97% Home Loans! So, How Much
Deposit For A Home Loan Now
Even with 97% home loans you still need to do your sums carefully when calculating how much home loan deposit you will need.
Initially, you would think that 97 percent home loans would allow you to get by with a smaller deposit, but that is not necessarily so.
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 (LVR) you want to buy, then the banks will start charging you Lenders Mortgage Insurance (LMI).
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 small phrases become even more important to you because they’re going to cost you money.
Those two phrases 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 (Note: That doesnt include purchase costs at this stage).
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. This fee goes to the insurance company.
Also, if you’re looking to buy established property with a low deposit home loan there is still the purchase costs such as State Purchase Transfer Stamp Duty and Legal Fees that have to be accounted for on top of everything else we just discussed.
Low Deposit Home Loans – What’s Best For Me?
A low deposit home loan should be looked at like any other loan. It should be tailored to ones needs.
One of the best ways for borrowers to approach getting a loan is through an expert loan broker, who can discuss your situation, identify your home loan needs and then analyse the best solution out of the hundreds of loans they will have access to.
Once they thoroughly understand your situation they can find the right low deposit home loan to match your needs, desires and savings.
How Does A Family Pledge Loan Or
Family Pledge loans or Guarantor home loans can be accessed through the co-operation of a direct family member who offers the additional security of their property.
This is usually the parents, but with some lenders it can be a sibling, grandparent and in some instances an ex partner.
The family pledge loan allows the bank to take security over two properties, the one you’re purchasing and the one the home loan guarantor owns.
Some lenders family pledge loan policies allow the total loan amount to cover the total cost of purchasing the new property, plus allow the inclusion of the purchase costs.
Although some will allow it, nonetheless most lenders will require the primary borrower to have at least a 5% deposit.
That said, the good news is a family pledge 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.
Check This Important Qualifying Criteria
For Low Deposit Home Loans
When applying for a low deposit home loan applicants have their applications processed twice.
First, the bank/lender will assess your application to confirm that it meets their borrowing conditions.
Secondly, it then gets assessed by the lenders mortgage insurance company.
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.
A clean Credit Report Is A Big Benefit
Get a copy of your free 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
In most instances (not all though) 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 almost 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 low deposit 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.