When it comes to low deposit home loans, it is essential to understand the premise behind them. The idea is to allow borrowers to apply for loans that are over 80% of the property’s value. This means all you have to put in as a down payment would be 5-10% while being able to borrow the remaining amount. This is ideal for those who are just entering the market as a first-time buyer.
How Large is the Initial Deposit?
The deposit is going to be anything that is under 20% of the property’s value for this type of loan. This is common when it comes to high Loan to Value Ratio home loans.
What’s Required to Qualify?
For qualifying, you have to make sure to understand there are strict regulations in place. Lenders will only give out these types of loans to those who are deemed to be ideal long-term candidates that will repay their debt properly.
These requirements include:
- A Stable Income Source – The lender is going to ask for proof of employment and any other way to prove you are capable of paying the debt over the coming years.
- Loan Purpose – This refers to what the home loan is going to be used for since some people use them for refinancing properties. This may not be approved depending on what the lender demands from applicants.
- Property – Since the loan is going to be for a property, this is a variable that matters. There are restrictions in place for certain types such as high-rise units, and display homes.
- Credit Score – Your credit history is going to matter when it comes to your viability as an applicant. Are you able to make payments on the mortgage? Have you done it in the past proving you are reliable?
- Genuine Savings – This means you have at least 5% of the property’s value sitting in your savings account over the past 3 months. This is known as the “Genuine Savings” rule among lenders.
- Asset Position – This refers to having what is deemed to be a “reasonable” level of assets compared to the property being purchased. This also factors in your income.
- Debt Level – Even when a person has a good credit history, it’s also important to understand the amount of debt under your name. If it is too high, the lender may not want to approve the application. This has to do with the high LVR because you are asking for a large amount right away. As a result, you cannot have a combination of loans that are greater than 5% of the property’s purchase price.
The more you end up depositing for the mortgage, the more you are going to get when it comes to finding a great deal. Mortgage brokers can help with this process, especially as the deposit increases on your end. This simply reduces the risk on the lender’s side making it easier for them to approve the application.
How Do Low Deposit Home Loans Work?
These types of loans are built around the idea of borrowing more than 80% of a home’s purchase price. This is noted for being high-risk in the lending world, which is why there is a maximum amount that can be borrowed along with the LMI (Lenders Mortgage Insurance).
To get approved, you will have to find the right lender and also fill out the relevant information in your application.
In most cases, the interest rates are not going to skyrocket and you will get a respectable deal.
Are Low Deposit Home Loans Available Everywhere?
No, some lenders do not offer these types of home loans in the country including larger banks. Borrowers that are looking to go with this type of loan will have to find a non-bank to complete the deal.
These lenders are also known for being less restrictive when it comes to requirements and will also have far more competitive interest rates too. This is ideal for those who are first-time buyers or are looking at different options before signing on the dotted line.
If you end up looking at one of these lenders, it may also be easy to find a special offer on the loan.
Finding the Right Lender
In the end, there is nothing more important than finding a lender that is reputable and is going to make sure to give you a fair deal. This is a must considering how much you are going to be borrowing and what the underlying interest rate is going to be moving forward.
In these situations, the differences can be significant due to the discounts and hidden terms.
Go with a qualified mortgage broker to help with this process because they will know what to look for. This expertise is essential for moving forward.
Importance of Comparing LMI Premiums
Comparisons are a must when it comes to looking at different options on the open market. Don’t assume the lender is going to be the right fit without looking at what else is out there first. This is the best way to make sure you have a good grasp of your options before making a decision.
There are many situations where borrowers go through the motions and end up locked in a deal that is comparatively unfair.
You should also look at the different loan brackets and what each lender has to offer as their “best” deal in your case. This isn’t always advertised, which is why you have to check it out in detail on your own.
Regardless, the more you end up borrowing, the more your LMI premium is going to rise.