Most first home buyers think that they need a 20% deposit before even considering buying a house. They hear on TV or through the media that it’s getting harder and harder to buy into the market so they spend years trying to save every dollar they earn and live frugally.
What many don’t realise is that there are other options that could be explored, which means they could afford a home now. They key is to make sure the loan is affordable in the long term. With good stable employment and minimal expenses, this is not normally an issue.
When saving for a home deposit, you’ll often read advice that you need to save at least 20% of the property purchase price. So if the purchase price of your home is $400,000, you need to have a deposit of $80,000 saved. But that’s not always the case.
LMI (Lenders mortgage insurance)
LMI is one way that a lender may consider letting you borrow for less than a 20% deposit. LMI is insurance that protects the lender in the case that you default on your loan and can’t make the repayments anymore.
To take this option there is a fee involved but it could be added to your loan. You can ask our team at Smartline Rockingham for calculations on how much this will cost you.
With LMI, some lenders will let you borrow up to 95% of the property’s value. So for a $400,000 purchase price, you would only need to save $20,000 plus fees. If your priority is to get into the property market as early as possible, this could be an option to consider.
An alternative that some lenders offer is a family guarantee, which lets a family member use the equity in their own assets to secure against your new loan. It’s a way to lower the risk for the lender, so they know that if someone defaults, their family will pick up responsibility for the loan. A family guarantee can be taken by a close family member such as a parent or sibling.
If it’s not possible for you to save a large deposit, these options may appeal to you. You should ask us to run a full assessment for you so we can help you calculate what will save you money in the long term. Contact us today at Smartline Rockingham for more information.