Home loan deposits
The total amount of your deposit will affect the types of loans and lenders that are available to you but with a little help from a Loan Market mortgage broker, securing a home or investment loan at a competitive interest rate may be easier than you think.
100% or “no deposit” home loans
100% loans are ideal for those who have a good income but have been unable to save a deposit, for whatever reason. This type of loan allows you to borrow 100% of the purchase price of the property, provided you are able to cover associated purchase costs and service the loan repayments. True 100% loans that cover the entire purchase cost of the property are unavailable in the current economic climate.
90-95% home loans
Some lenders will allow you to borrow up between 90% and 95% of the property value at their regular interest rate terms, provided you have the required genuine savings and can prove you can service the loan. Some may also allow you to capitalise your Lenders Mortgage Insurance costs (see below). With the most common low deposit home loan , this effectively takes your borrowings to around 92%. These loans are suitable for any type of borrowing but particularly effective for first home buyers or Investors looking to maximise cash flow and gearing benefits.
There are many ways of covering your deposit
Especially if you are a first home buyer, there are many schemes available to both help you save and to cover your home loan deposit. Outlined below are a number of options available for both saving a deposit and structuring your home loan. Your Loan Market mortgage broker will outline the option/s that are in your best interest, call us on 13 LOAN (or + 61 2 9249 3739) or email us the form on this page.
You will have fees and charges to pay
Along with your deposit, you will also have to pay the standard fees and charges associated with your home purchase. If you don’t have all of the additional funds for fees and taxes, there are ways to also cover some or all of the fees and your mortgage broker should be able to show you your options when you are sorting out your home loan.
Genuine savings
Many lenders have introduced the requirement for borrowers to put at least 3% of genuine savings towards their deposit. For first home buyers, the genuine savings required is in addition to the First Home Owners Grant. The need to show genuine savings makes it more important than ever to work out a budget prior to beginning the search for a property, and sticking to it. Use our Budget Planner for assistance in working out a realistic budget.
First home owners grants
If you are a first homebuyer and are eligible for the grant you may be able to use some or all of your First Home Owners Grant as part of your deposit. Your local mortgage broker can provide further information on the grant, and assist you with your application.
First home saver accounts
The federal government introduced the First Home Buyer Deposit Saver Scheme in 2008. The scheme, offered in addition to the First Home Owners’ Grant and any state-based first home buyer grants and concessions, provides deposit saving support for first home buyers through special savings accounts called First Home Saver Accounts.
Limited guarantor loans – family pledge, equity guarantee
Limited guarantor loans, also known as ‘family pledge’ loans or equity guarantee loans, allow an immediate family member to ‘pledge’ assistance to the borrower, either as a guarantor providing support through repayment assistance or as a guarantor providing additional security. Family pledge is typically a feature as distinct from a loan, and can be applied to most loan types once approved.
They help the borrower to purchase when they otherwise may not have been able to, as well as reduce or remove the requirement to pay Lenders’ Mortgage Insurance. This is particularly useful if you are either a first home buyer or someone who is trying to re-establish yourself after a life event, such as a divorce.
A good limited guarantor loan will allow the guarantor to set the amount they are guaranteeing, in effect limiting their exposure to loss. It’s important to note however that it can be difficult for the guarantor to remove themselves from the loan as the main borrower becomes able to service the loan themselves. You should seek legal advice prior to entering into a guarantor arrangement.
Monetary gifts
There is also the option of using a monetary gift to assist you with your deposit. This can help you bring the loan you require down to a manageable level, and reduce or remove the requirement for Lenders’ Mortgage Insurance.
Deposit bonds
Deposit bonds are a cost- and time-efficient alternative to a cash deposit if your cash is tied up or you are unwilling to use it. It is a guarantee to the vendor equal to the amount of the deposit required. Deposit bonds can help you to improve cash flow by allowing you to retain the cash for the period your deposit bond covers – generally anywhere up to about 4 years.
How much can I borrow?
How much you can borrow will depend on many different factors such as your lifestyle and financial situation. There are a number of factors taken into account when determining your borrowing capacity. These include, but are not limited to, income, credit history, income history and employment history. For a guide to how much you can borrow check out our home loan calculators but remember, it is important to have your borrowing capacity assessed individually by your Loan Market mortgage broker before hitting the open home circuit.
How to avoid paying LMI (Lender’s Mortgage Insurance)
When you get your home loan, if you want to completely avoid paying Lender’s Mortgage Insurance (LMI), you will need to have a 20% deposit. So while you can get a home loan with pretty much no deposit at all. it is important that you know how to structure your home loan deposit, fees and charges to your best advantage.
How Lenders Mortgage Insurance (LMI) Works
LMI is usually required when the Loan to Value Ratio (the value of the loan amount opposed to the value of the property) is greater than 80%. Some lenders may also waive this cost for loans with an LMI between 75 and 80%. LMI protects the lender from any losses that may occur as a result of a default by the borrower (i.e. the borrower forgoes repayments). LMI does not offer any protection to the borrower.
Dependent on the lender and the risk, LMI can cost up to 3% of the amount you are borrowing. Up to 95% loans (or 5% deposit), the amount would typically be up to 1.2% – 1.5% of the loan amount. As you get closer to 80% home loans (or 20% deposit), the cost usually discounts substantially. These include loans which cover 100% of the property price and loans which cover both the property price and any associated costs.
Get the home loan deposit you need
If you have a savings goal or home in sight, it pays to talk to a Loan Market mortgage broker who understands both the first home saver scheme and can help you understand what your home loan options are as well as set up your savings scheme with the right bank for you. Click on the link or call at any time on 13LOAN (International direct line: +61 2 9249 3739) and we will have a broker in contact with you within 2 business hours.
