With a highly volatile housing market, many potential buyers are wondering how they can get into the market as quickly as possible. Quite often, clients ask the question; what do I need to get a home loan? Whilst a 20% deposit may be the simplest answer, it is not the only solution out there.
Cash Deposit and LMI
As mentioned above, most banks like to see 20% of the value of the property as a deposit. So if you are purchasing a property worth $500,000, the bank would like to see a deposit of $100,000. Over recent years, this has been made easier through government initiatives such as the First Home Super Saver Scheme or the First Home Owners Grant.
However, for those who want to get into the market that much quicker, most banks will lend with as little as a 5% deposit; reducing the $100,000 deposit mentioned before, to a more manageable $20,000. However, as a trade-off, the banks will require that you take out Lenders Mortgage Insurance (LMI). LMI is an insurance policy that protects the lender from the risk of a financial loss if the borrower defaults on their home loan. The cost of LMI usually differs from bank to bank and depends on the size of the loan, the amount of the deposit and whether the property is used for Investment or Owner Occupied purposes.
Family Guarantor Home Loans
If getting the cash deposit is difficult, there is the option of entering into a guarantor arrangement. This is where a member of the borrower’s family, the guarantor, can use their home as security for the new loan. This then allows for borrowers to borrow anywhere up to 110% of the property value (depending on the bank lending policy).
It is important to note; that if the borrowers default on their loan, the guarantor will then become liable to service the remaining portion of the loan. If they are unable to keep up with the monthly repayments, this could lead to the property being repossessed to repay the remainder of the loan. It is recommended that if you are going to pursue a guarantor relationship that you seek independent legal advice to ensure you are protected.
Whilst saving a 20% deposit can be daunting and time-consuming, there are many alternative options for those who want to enter the housing market much sooner. However, it is always important to seek professional advice in relation to your lending needs. That is why Crest Mortgages and Finance promises you expert advice on pursuing the right strategy for you, so you can purchase your dream house as quickly and trouble-free as possible.