Are you one of the many people who:
– Are a first-time home buyer and don’t have adequate deposit to buy your first property?
– Are a current home owner, but don’t have adequate cash deposit to buy another property? or
– Are retired and wish to downsize from the family home you have lived in for 45 years, but have no cash reserves?
If you fit into any of the above situations and you want to buy a property, you may have recognised that:
– It can be frustrating to find a suitable home loan; and
– Major banks and some lenders have introduced stricter lending criteria, since the GFC (Global Financial Crisis).
Interestingly, it doesn’t have to be frustrating to find a suitable home loan, as there are still some lenders/credit providers who offer low deposit home loans. But, the key to finding the right low deposit home loan will come down to knowing which lender/credit provider can provide a suitable low deposit home loan solution that will cater to your particular situation.
If you are looking for a low deposit home loan, here is a list of options you can consider:
Note: Whatever option you decide to choose, will depend on what the “vendor” (seller) is prepared to accept.
Option 1 – 5 Percent Cash Deposit
There are still a number of lenders/credit providers that offer low deposit home loans. They will allow you to borrow up to 95 percent of the Loan-to-Value Ratio (LVR) of the security property. However, given the high LVR, they will be looking closely at your capacity to repay the home loan. So, you will need to:
1. Demonstrate a strong and stable income; and
2. Show at least some genuine savings.
Option 2 – Deposit Bond
Many home buyers do not have the ready cash to pay a deposit of 10 percent of the purchase price of a property. In such a situation, a deposit bond can be of help. It is a guarantee to the vendor, by an insurance company, that the vendor will receive 10 percent deposit.
How does a Deposit Bond work?
By taking out a deposit bond, the home buyer is taking out an insurance policy. The policy tells the vendor that the insurance company will pay 10 percent deposit to him.
Where can a Deposit Bond be used?
A deposit bond can be used as an alternative to a cash deposit. If the deposit bond is used properly, it will be of benefit to all parties involved in a real estate transaction (i.e. the vendor, the home buyer and the real estate agent). In fact, no money actually changes hands. Instead, all purchase funds are paid in full at settlement, and the deposit fund simply lapses after settlement. Some examples of where a deposit bond can be used are:
– You need a 10 percent deposit, but you only have a 5 percent deposit, and you have been approved for a home loan of 95 percent of the purchase price of the property;
– You have a deposit available, but your funds are tied up in shares or managed funds, and you don’t want to liquidate immediately; or
– You are selling one property and purchasing another property, and you don’t have a 10 percent cash deposit.
Option 3 – Bank Guarantee
Another option for you to consider is guarantor home loan. It has the potential to help you save thousands of dollars in Lenders Mortgage Insurance (LMI). It is a type of home loan in which another person (such as a parent) puts up their own property as security. It will enable you to borrow up to 10 percent of the purchase price of the property, without needing a deposit.
Normally, if you borrow more than 80 percent of the property value, you are required to pay LMI to the lender/credit provider. So, if you choose to use a guarantor home loan option, then be sure that the LMI premium is waived.
Seek Assistance from Expert
With so many different lenders/credit providers to choose from, you can seek help from a professionally qualified and licensed finance/mortgage broker to do all the leg work for you. He/she will:
– Negotiate with lenders/credit providers on your behalf to arrange a low deposit home loan that best suits your needs and situation;
– Manage the loan process right through to settlement and be there for you at post-settlement;
– Find out your eligibility for the First Home Owners Grant (FHOG) Scheme;
– Explain the process of the FHOG application to you; and
– Help you to determine your overall serviceability position.
Do not worry if you want to buy a property without adequate cash deposit. Simply take help of a licensed finance/mortgage broker and make a quick purchase.