By Dave Fleming : 22 September, 2020
Should you make application for a home loan, especially if the loan you want happens to be for more than 80% of the property’s value, with most lenders you’re going to have to show them that you already have a satisfactory amount of savings.
This reassures the lender that you have the capability to fulfill your repayment obligations once you have been confirmed for a loan.
Most lenders policies require that you have a minimum amount of 5% of the property purchase price saved as a deposit.
Although, there are lenders that will loan up to 98% and 100% of a property’s value. However, most mainstream lenders will only lend to 95%.
That is, unless you have an immediate family member who is willing to use equity in their property to guarantee the loan you want (conditions apply).
In these instances you don’t need any deposit and you can borrow up to 110% of the value of the property you want to buy. It’s called a Family Guarantee Loan.
No Deposit Home Loans and LMI
To obtain a loan with any of those lenders the borrower would need at least an 8% deposit in order to be able to capitalise the Lenders Mortgage Insurance premium that will be charged.
Any loan that exceeds 80% of a property’s value will incur a mortgage insurance fee. This is a fee that is paid by the borrower to an insurance company that insures the banks loan in case the borrower defaults on their loan.
What Constitutes Genuine Savings?
The borrowers savings in most instances will be accepted by the selected lender as an acceptable genuine 5% deposit amount if the savings account in the borrowers name shows the required savings have been in the account for 3 months or more.
Alternatively, the savings account had constantly been receiving funds over 3 months or more and now had the required deposit amount.
There are many classifications of savings however these mentioned below may or may not qualify for a home loan deposit:
- Cash gifting program
- an inheritance
- casino/other gambling winnings
- Cash coming from selling a non-investment asset
- Incentives and government financing
- Personal loan
Are No Deposit Home Loans Just a Myth?
That said, if the money can be shown to have been in the borrowers saving account for at least 3 months, most lenders will accept that as genuine savings.
Are there other options for acquiring a loan if I don’t have genuine savings?
The good thing is that there are still loan companies that are willing to provide you with a loan despite having no genuine savings.
- Family guarantor loans – a family guarantor loan is where an immediate family member allows the equity in their home to be used as security to guarantee the loan. Conditions do apply. However, most lenders will allow borrowers to borrow up to 110% of the purchase price of the property they want.
- Some lenders may also accept non-cash genuine savings – some of these include equity in another property, term deposits and shares. In certain cases, the sale of a vehicle owned by the borrower can also stand as genuine savings provided that the borrower shows proof that the vehicle was owned for at least 3 months.
There are some lenders that will allow you to take out a personal loan to obtain the required deposit.
Keep in mind though you will need to show healthy taxable earnings to be able to do that strategy.
Any liabilities you have or create will reduce your borrowing capacity for a new home loan.
- A stable rental history could see a loan provider forgive you to having to come up with 5% genuine savings. There are a few lenders who will waive the 5% deposit rule if documentation can be produced from a licensed property management agent showing that all rent has been paid on time and in full for the preceding 6 to 12 months.
This will highlight your ability to make repayments on time and on an ongoing basis. Nonetheless, you will still need to drum up a deposit from somewhere.
What is the Most Effective Way to get Qualified?
If you’re keen on buying a home and you’re not sure if you will be able to qualify then contact us or a reliable experienced mortgage broker near you and they will be able to assess what you need to do.
Sometimes, all it takes is to understand the situation of the borrower and find a suitable lender with the right policies that can match the borrowers needs.
Brokers are the best bet because they develop their understanding and successful strategies through experience and constant communication with a network of lenders policies and procedures.
Each lender has specific policies and each borrower has specific needs – this is something that the best mortgage brokers understand and matching the borrower with the right lender is what they do very well, especially when it comes to no deposit home loans.
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