Low Deposit Home Loans

Finding the right home loan can be difficult, particularly if you’re new to the home buying market. Low deposit home loan are very popular for first time home buyers, but can be difficult to achieve if you’re not sure what’s required.

In the past, mortgages of up to 105% were a popular option. Now, most lenders only lend up to 80%, leaving the other 20% to be provided as a deposit. Unfortunately, no deposit home loans (that were commonly available) don’t exist any more. And as house prices continue to rise at a pace which is out of line with Australian salaries, it means that it’s becoming increasingly difficult for home buyers — especially first time buyers — to buy property.

Compare Low Deposit Home Loans

 

Low Deposit Home Loans Explained

 

For a property with a purchase price of $500,000, for example, a 20% deposit would mean that a buyer would need to save a $100,000 deposit. That amount of money may be unrealistic to achieve for many, and without any other solutions, ‘normal’ people would find themselves unable to afford to buy their own properties.

There are, however, a number of solutions for people wanting to buy property, who are struggling to come up with a 20% deposit. A good solution for those struggling to achieve a 20% deposit is accessing a low deposit home loan. Not available via every lender, but they are a good solution if you’re unable to save a 20% deposit.

A low deposit mortgage will allow you to provide a low deposit, typically 5-15% of the homes purchase price. There are some requirements associated with a low deposit home loan, including having a strong credit rating and savings history. For the best advice as to what works uniquely for your situation, get in touch with one of our ACF mortgage brokers today.

 

Accessing a Low Deposit Home Loan

 

There are some things you’ll need to consider before deciding whether a low deposit home loan is a good option for you.

 

Credit History is Important

 

The most important thing to remember when you are looking to secure a low deposit mortgage is to have a strong credit history.

By showing that you have a strong financial basis and a good history of making payments without default, lenders are much more likely to agree to a home loan, and you are in a better position to negotiate with them in regards to deposit requirements.

 

Savings are Important

 

It’s also important to remember that even if you are struggling to find the 20% for a deposit, the more money you can save, the stronger position you will be in, even if you fall short of that magic 20%.

 

Lenders Mortgage Insurance (LMI)

 

This will be implemented by the lender for any loans that have less than 20% deposits. This insurance covers the lender if you default on a payment. The cost of the insurance differs according to the amount of deposit that you pay. So, for example, on our $500,000 house, you might be paying:

Deposit % Deposit Amount Estimated LMI Amount
5% $25,000 $15,960
10% $50,000 $8,640
15% $75,000 $4,803

It is worth remembering that your credit history will be analysed and taken into account, so you want to make sure that your credit score is as good as it can be.

You can get a good idea of your LMI payments by using a LMI calculator.

 

Mortgage Guarantees

 

Another option that some lenders might suggest — especially for first home buyers, is to have a guarantor — in most cases, another homeowner (usually a parent or parents). This means that should the borrower (that’s you) default on their loan payments, the guarantor promises to pay the loan.

Quite often, once the 20% threshold has been passed in terms of repayments, the financial institutions may take away the guarantee if the borrower asks them to. Once again, it is important that you are able to show that you have a good credit history for this to happen.

Asking someone to be a guarantor on your home loan is a big deal. This shouldn’t be asked or entered into lightly. If things don’t go right, it can result in the guarantor losing their homes, and untold personal problems, especially between parents and their children. Make sure you’ve got a plan in place so that you know you can meet the mortgage repayments.

 

Other Security / Existing Equity

 

If you already own a property, or have other security such as shares or a term deposit, you can use this as security for a low deposit home loan. It’s best if you don’t have any finance on the property, but even if you do, it’s worth trying to use it as a bargaining tool. This option is especially popular amongst property investors and those with existing properties.

 

Superannuation

 

This option is more complicated, and suited for property investors only, who have a self-managed superannuation fund, set up. The money is borrowed through the SMSF. This option however, should only be taken when expert and legal advice has been sought.

 

Next Steps to get a Low Deposit Home Loan

 

Finding the right low deposit loan options for you can be challenging, but there are ways to make things easier. Get in touch with our mortgage experts who will take you through all of your options and how this would affect your situation.

Accessing a low deposit home loan is a great option if you’re a first home buyer and there are lots of options to consider. Make sure you have a strong credit history and can show savings before you attempt to find the right mortgage for your needs.

If you’re ready to take the next step in sourcing a low deposit home loan, contact the experienced team at Australian Credit and Finance today.

Talk to our friendly team of Australian Credit and Finance mortgage experts who can help you navigate your way through the process of buying a home, investing in property or refinancing your home loan. Call us today on 1300 735 557 to discuss your low deposit home loan options.
X