95% Home Loans Make Comeback
Greater competition between banks and other lenders for home loan clients has paved the way for the introduction of a greater range of options for low deposit holders in recent weeks.
Low deposit options became much more limited during the GFC, leaving a great percentage of borrowers to pull together deposits of 10% or more, with an increase requirement for part of that deposit to come from genuine savings. This was particularly true for new’ clients borrowers looking for a home loan who were not already existing clients of that bank or lender.
However, there are now an increasing number of 95% home loan options available for both new and existing clients, all of which still require at least a portion of genuine savings but some of which are more flexible in where the balance of the deposit monies comes from.
This is great news for clients seeking a higher LVR home loan, as the difference in lending amounts as well as criteria from lender to lender is quite significant. More choice will usually mean a better outcome for consumers.
Who do 95% loans suit?
95% home loans are often particularly suitable for first home buyers, who may not have had the chance to save a larger deposit but have a good paying job. They may also suit people re-entering the market, and investors who want to maximise the borrowings they make on the investment but don’t want to introduce a second security property into the transaction.
What about LMI?
Lenders Mortgage Insurance, or LMI, will be payable on a 95% loan or indeed on any loan where the borrowings are greater than 80% of the value of the property. However, you may be able to capitalise LMI into your loan, taking your overall loan to 97% (95% against the property and around 2% LMI). Indeed this is one area where there an increasing number of options.
What should I be aware of?
If you are considering making use of a 95% home loan, you will need to make sure you understand the requirements and conditions on that loan. These will differ between lenders but may include:
- Restrictions on the type of property you purchase
- Restrictions on the location of the property you purchase
- A deposit that includes some genuine savings (in most cases around 5% of the purchase price of the property) NOTE: All lenders are very specific as to what they require in terms of genuine savings. It is important to understand this fully to ensure the criteria are met prior to loan lodgement
- A clean credit history, i.e. no defaults, even if they are paid and for smaller amounts
- Full doc loans only (no low doc), i.e. all income needs to be fully verified through the lender's usual process
If you are a low deposit holder and would like to discuss the home loan options available to you, make an appointment today.