Getting A Loan With Little Or No Deposit
Want to purchase a property but don’t have the deposit required for a home loan? Funding Options managing director Dom Cassisi shares the facts you need to consider.
Realistic and practical steps can put you in the position of affording your dream home sooner than you thought possible.
Admittedly, it’s very hard to break into the property market when you don’t have a deposit. A very small or non-existent deposit is often the biggest obstacle homebuyers face.
5% is often the bare minimum for a home loan deposit. It’s 20% if you want to avoid Lender’s Mortgage Insurance. A lot of lenders don’t have a provision for loaning to individuals who can’t afford the first deposit. But there are some options out there that are worth investigating.
Help With Your Home Loan From Mum and Dad
Probably your best option for securing a no deposit home loan is to ask your parents or someone else trusted to go guarantor for you. As long as they’re willing to take on some of the risk, they can offer their property as security for your loan.
Be wary of offers for a 105% guarantor loan. This is a tempting offer as it’s designed to provide you with that extra cash you need for the legal fees and other costs associated with purchase. But it can bite you in the end if your property value unexpectedly plummets, causing you to owe more on your property than it’s actually worth. It’s important to talk to your mortgage broker about this.
First Home Owners Grant
Getting some help from your state government could help you get your foot in the door, so to speak. If you qualify, the First Home Owners Grant could help you afford the deposit for your loan.
Gifts From Others
A hefty financial gift from a relative or friend who can afford to help you might be a welcome cushion to your savings account. But most lenders will want a record of your account from several months back. They aren’t looking at just how much is in your account – they want to see your track record for saving.
Even so, some lenders are willing to accept a deposit based on a savings account made up of gifted funds.
Use Your Superannuation Fund
A Self-Managed Super Fund (SMSF) could let you borrow up to 80% of the deposit, leaving your Super Fund to cover the rest. But this isn’t an easy way out if you aren’t already overseeing an SMSF – it’s a huge responsibility in and of itself.
Either way, if you’re keen to explore the Super option it’s a complex path with potential ramifications for your future, so be sure to work closely with your accountant and mortgage broker.
A Personal Loan MIGHT Be An Option (But Not Recommended)
Some people have been able to use a personal loan to raise the capital required for a deposit, which a lender may allow in rare circumstances. Even if successful, going this route will almost certainly leave you with astronomical interest rates and yet another set of repayments to deal with.
Whichever method you choose, keep in mind that some qualifying circumstances on your end are very helpful. It’s easier to get a loan if:
– You have good credit
– You aren’t drowning in debt
– You’ve got a stable job
– You’ve got a history of making reliable repayments
Remember that being able to put down a large deposit will keep your repayments smaller. The ideal situation is to save up as much as you can, as long as you can. Plan in advance.
Seek advice from the loan experts, Funding Options. Contact us now for a free, no obligation discussion about your needs.
– Dom Cassisi, Managing Director