Getting a home loan is essential for most people who wish to buy their own houses and having a 20% deposit to put down is often one of the requirements to being granted one. However, what if you don’t have the 20% deposit? Can you get a home loan with a very low-deposit?
Simply put, yes you can. Several financial institutions offer a low-deposit home loans, with some providing options where you can incorporate some of the purchase costs into the loan.
Low Deposit Home Loans
Be cautious of these offers. They are not banks offering these, rather property selling agencies. The reality is, there is no such thing. Generally, the minimum deposit required is 5% of the purchase price. Often the selling agent is gifting you funds to assist you with your deposit for a house they’re trying to sell you, which is against the rules. Banks don’t always make smart decisions, but they do have lots of history to refer back to, and they know when they smell a rat. If it sounds too good to be true, it often is. The selling agent will promise you all of the success in the world with this type of arrangement, in my experience, very few are actually as successful as they promise to be. There are many tips we can help you with to assist you to save money, in addition there are loans available where a family member can assist and ensure their funds are protected also.
Higher Interest Rates
Due to the increased risk involved when applying for a low deposit home loan, the lender often hikes up the interest rates. Typically, this will only be by 0.5 – 1.0% higher than market standard (subject to vary). This is not always a bad thing. Every client I’ve ever had wants the lowest rate possible, and we completely get why. However, if it means you’re paying off your own mortgage, and it’s about the same or cheaper than paying rent, this might be the option for you.
Lenders Mortgage Insurance (LMI)
Lenders mortgage insurance (LMI) is required with loans where you have less than a 20% deposit. This ONLY covers the lender should the borrower default on the loan. No one likes paying LMI, and as I mentioned, it only covers the lender, however if you consider paying around $15,000 in LMI, it will save you having to save another $50,000 towards your deposit. Especially when you consider, while you’re saving that extra deposit, you’re also paying rent. Example: rent $400 per week = $20,800 paid off someone else’s mortgage. Can you still save under that pressure?
Get A Guarantor
One way to avoid being denied a low deposit home loan is to get a guarantor to shore up your risk. The role of a guarantor has changed over time. They can no longer assist you with the servicing of the mortgage (guaranteeing it will be paid month to month), they can only assist with deposit or entry costs. There is a bit of a process to go through here, because we need to ensure the guarantor understands the role and rights and consequences, but it can be done!
Don’t make a decision you’ll regret. Explore your options thoroughly before you decide. For any further guidance, don’t hesitate and contact BlackBox Finance by filling out the contact us box below, calling us on 1300 70 12 17 or sending an email to [email protected].
Servicing the Gold Coast, and particularly Burleigh, Palm Beach and Currumbin. We are your local Palm Beach Mortgage Brokers.