Low Deposit Home Loans
As property prices continue to rise in almost all capital cities, many Australians deal with the challenge of saving for the 20% deposit required to buy a house.
This is where low deposit home loans come in handy.
Can You Get a Home Loan With 5% Deposit?
Back in the days, you would have been able to apply for no deposit home loans. However, Australian lenders are no longer offering these mortgages after the fallout of the GFC or Global Financial Crisis.
The sole exception to this is when you got a guarantor.
But, the good news is that you can still be qualified for a home loan even when if you only have 5% deposit.
To be qualified, you need the following:
- Good income – Most lenders are quite strict as they asses your ability to pay off a 5% deposit home loan or called your serviceability ratio.
- Clear credit history – There should be minimal credit enquiries in your credit file and it shouldn’t have defaults. The general rule of thumb is for rent, credit cards, and bills such as mobile plans and utilities should have timely payment for the past 6 months.
- Stable employment history – Even if there are some exceptions, it often means that you have been employed for the same job for the past 6 up to 12 months.
- Strong asset position – The lender is going to evaluate your income to the asset position in relation to your age. For example, it is assumed that if you have been a part time worker for several years, you will already have your own car as well as a decent savings amount relative to the income you are earning.
- Proof of 5% in genuine savings – It usually comes in the form of consistent deposits in a savings account throughout a 3-month period. This has several exceptions, though.
- Little to no existing debts – Most lenders consider it a red flag to have more than one personal loan or credit card.
- Non-traditional location or property- Banks are quite conservative as far as property located in regional or small areas and high rise units. There are some forms of unusual property that might cause a decline in your application for a home loan.
Can I Get a Home Loan Without a Deposit?
As the average house price in Australia sits at around $600,000, a first time home buyer who wants to save the suggested 20% deposit will mean that you need to acquire a whopping $132,000.
Good thing that there are now available zero and low deposit home provided that you got a family guarantor that will let you join the property market as soon as possible.
Now, let’s take a look at zero deposit home loans or also called no deposit loans. Prior to the GFC, financial lenders and banks allowed first time home buyers to apply for a loan with no deposit. Today, however, the only way for you to apply for zero or low deposit home loans and borrow up to 100% of the price of the property is when your family member or parent acts as your guarantor.
The main reason why home loan providers let you borrow with no deposit when you have a guarantor is because they are aware that if you cannot meet the repayments for your home loan and you end up forfeiting on the loan, the money they cannot recover when they sell your property could get seized from the part that your guarantor has put up for their own house. This is what makes guarantor loans a bit risky.
An alternative choice is to get the help of your parents for securing the deposit. For instance, you can try saving 5% with your parents giving you the extra 15% to meet the deposit of 20%.
The best thing about these zero deposit loans that are applied for with a guarantor is the fact that you can still pick the kind of home loan suitable for you.
How Do Low Deposit Home Loans Work?
Zero or low deposit home loans are the best way for you to be able to get into the property market for the very first time. With the continuous surges in house prices, searching for the most affordable home loan that suits you and your family might prove to be a bit tricky.
Low deposit home loans is a good way for you to help you become a home owner in the current market even if you don’t have the large deposit required by most lenders and banks today. If you are having a hard time trying to juggle your living expenses, it can make a big difference if you can find the least amount of deposit for a home.
As mentioned earlier, applying for low deposit home loans is already considered as a high risk and for this reason, many Australian lenders implement a limited maximum amount that they will let you borrow. This is often set at a deposit of 10% of the home loan plus lenders mortgage insurance.
For your 10% deposit home loan to be approved, you need to present the lender with strong evidence that you are a good borrower. As there are just a few lenders that provide 5% deposit home loans with lenders mortgage insurance, getting the approval for something lower than 10% deposit is more difficult.
The best thing here is that the moment you are you will be able to enjoy almost a similar interest rate as someone who made a 20% deposit.
What is Low Deposit Premium?
LDP or Low Deposit Premium is a non-transferable, non-refundable, and one-off bank fee added to low deposit home loans. Meant to reflect the associated risk with low deposit home loans, low deposit premium is calculated according to the amount you borrow and the size of the deposit you make. The cost will be lower if you contribute more to your property’s purchase price.
Low deposit premium serves as the protection of the bank from any loss they will incur if you fail to pay back your loan.
The situations of your home loan are going to determine if it incurs lenders mortgage insurance or low deposit premium. You just need to pay for one and not both.
With low deposit home loans, it will be more possible for people to finally buy the house of their dreams. If you are having a hard time in securing a deposit for your dream home, then, low deposit home loans are just the perfect answer for your needs.