If a large deposit isn’t possible for you, there may be other options available. Many lenders are now offering low deposit home loans that allow borrowers up to 95% of the purchase price.
As a general rule you will require at least 5% of the purchase price as a deposit. Each lender has different requirements for low deposit/low doc home loans so your broker can talk you through the options suitable for you.
If your deposit is less than 20% you may need to pay Lenders Mortgage Insurance (LMI) or get a guarantor as security.
Lenders Mortgage Insurance (LMI)
LMI must be paid by the buyer, but protects the lender if the borrower is unable to repay their loan and the sale of the property doesn’t cover the outstanding loan balance.
Because the lender is protected by LMI, some lenders are willing to consider loan deposits as low as five per cent. However, LMI can be expensive and must be factored into your costs when working out a financial plan.
The LMI premium is calculated based on a number of factors, ranging from how much you want to borrow and the LMI product type – for example, first home buyer or low-doc loan – through to the loan-to-value ratio.
Whilst LMI will require some additional costs (which can be paid upfront or in some cases capitalised into the loan), it could help you get into your own home sooner.