Have less than a 20% deposit?
When buying a property, most lenders generally prefer that you have 20% of the purchase price as your deposit, plus the transaction costs like Stamp Duty, Transfer Fees, Registration Fees, Legal fees etc.
So if you haven’t saved that 20% yet, don’t despair as there are still a few options for you.
Lenders Mortgage Insurance (LMI)
Most lenders don’t mind if you haven’t saved the 20% deposit, as long as you pay a one-off insurance premium to cover the higher risk to the bank.
This amount can be in the thousands of dollars, even the tens of thousands of dollars; but it can often be added to the loan making it a little easier to swallow.
It also comes with a higher interest rate, so with the bigger loan and the higher rate, you’re repayments can be quite a bit more than if you had the 20% deposit
Some lenders may waive this, as long as you have at least a 10% deposit, you work in a specific industry (like law or accounting) and earn a wage above a certain level.
The lender also looks more closely at your application, often asking for additional information, because of the higher risk.
Reach out if you’d like a Fact Sheet.
15% deposit no LMI
From time to time, some lenders may waive the LMI cost if you have at least a 15% deposit (on top of 3rd party costs like Stamp Duty & legal fees). Or they might charge a tiny amount, like $1.
It still comes with the higher interest rate and the extra application scrutiny, so you could save on the insurance premium, but it still has its downsides.
Federal Government Guarantee Schemes
The Federal Government (a few years back) launched a great scheme to help first home buyers that didn’t have the 20% deposit avoid paying LMI.
It involves the Government providing, to a select number of banks, a guarantee on your behalf in place of you paying Lenders Mortgage Insurance.
You have to meet some criteria to qualify, plus there are specific dollar amount limits on how much you can spend on a property, depending on where you are buying.
The banks will still assess your application a little more thoroughly, but often you don’t get that higher interest rate.
These schemes are currently available if you are:
✓ Buying your first home
✓ Building your first home
✓ Buying a home as a single parent (even if you have owned a home before)
✓ Buying or building your first home and live in a regional area of Australia
If you’d like to know more, reach out for a Fact Sheet.
First Home Owners Grant
Most state & territory Governments will provide a cash grant if you are building your first home (or buying a brand new one).
The amount can be between $10,000 - $15,000 and most banks include this in their calculations for your deposit, which is great. Plus it’s paid directly to the bank that gives you the home loan.
As usual, there are some qualifying criteria, which may vary between states and territories.
First Home Stamp Duty Concessions
In addition to grants, most state & territory Governments will also provide a discount on, or waive, the property Stamp Duties on first home purchases.
This can save in the thousands, even tens of thousands, meaning your deposit can go a whole heap further.
Your property solicitor / conveyancer should be able to assist you with confirming your eligibility and the discount available to you.
Family Guarantee
A small number of lenders will allow a family member to use a property they own as additional security for your loan so that you can avoid paying LMI.
This is known as a Family Guarantee or Family Pledge; often it is done by parents so it can be playfully known as getting help from ‘the bank of Mum & Dad’.
This type of assistance does have some complexities and lenders often apply a cautious approach to their assessments when a parent’s home is involved.
If you’d like to know more, contact us for a Fact Sheet.