Low Deposit / Guarantor & Family Pledge Home Loans
These days, gathering enough money for a suitable deposit can be quite challenging. For instance, if you’re eyeing a $600,000 property and you’re a full document borrower, lenders typically allow borrowing up to 80% of the property value without Lenders Mortgage Insurance. This means you’d need a $120,000 deposit plus extra funds for additional purchase costs. Accumulating such a deposit can be difficult, so what are your options for low deposit schemes to buy your property?
Here are the available choices:
Low Deposit Home Loans – Deposits from 5 to 20%
If you can’t manage to save 20%, there’s no need to panic. Many lenders are willing to lend up to 95% of the property value, albeit with Lenders Mortgage Insurance. Borrowing more than 80% of the property value makes you appear riskier to lenders, hence the requirement for LMI. While this protects the lender, not you, it does enable you to enter the property market sooner with a smaller deposit.
Guarantor Home Loans – Zero Deposit
If you’re fortunate to have a family member with significant equity in their home, you could ask them to serve as a security guarantor for your home loan. If they agree, the lender will use their property as additional security, allowing you to borrow, in some cases, up to 100% of the property value without needing a deposit. An added perk is that having a security guarantor usually eliminates the need for paying LMI.
Advantages of Low Deposit Home Loans:
- Fast entry into the property market without the delay of saving for a deposit, especially beneficial when property prices are rapidly increasing.
- Guarantor home loans often waive the need for paying Lenders Mortgage Insurance.
Disadvantages of Low Deposit Home Loans:
- Smaller deposits result in larger borrowed amounts, translating to higher home loan repayments.
- Lenders tend to impose higher interest rates for borrowers with higher Loan to Value ratios (LVR).
- Lenders Mortgage Insurance is typically required, excluding Keystart or Guarantor home loans.
