No Deposit Home Loans
No deposit home loans are not exactly that; but they do allow you to borrow around 95% of the purchase price of your dream home.
A no deposit home can be the fast track to home ownership if you can find a lender who still offers this type of loan.
In the glory days of pre-GFC, when anyone and everyone could virtually borrow as much money as they liked, no deposit home loans were readily available. But with the credit crunch came a tightening of lenders’ purse strings that have only been slightly loosened since.
How No Deposit home loans work
This type of loan is often sought after by first home buyers with minimal or no savings and investment property buyers who want maximum negative gearing benefits.
Your lender will allow you to borrow up to 95% or even 97% of the purchase price of your dream home, but to cover the lender’s risk, you will have to pay lenders mortgage insurance (LMI), which can be costly. For example: On a property worth $316,000 LMI will be around $8,349. And you need to be very clear on the fact LMI does not cover you in the event of default – it covers your financial institution.
You may also have to repay your home loan at a higher interest rate than if you saved a larger deposit for a standard or standard variable loan. And you will have to prove that you have a reliable income, and strong employment history.
Many lenders will offer a no deposit loan if your parents will act as a guarantor. This will also save you thousands of dollars on LMI as your parents simply provide your lender with a limited guarantee supported by a registered mortgage over their property.
Your parents are not liable for the full debt, only an agreed, guaranteed amount and they are also not responsible for your scheduled monthly payments.
Use iSelect home loan comparison website to find out if a no deposit loan is right for you.
The big winner here is of course that you can get into your own home sooner without wasting more money in rent, or living with your parents or flatmates.
No deposit home loans still come with the same features as other loan options such as redraw facilities and the ability to make additional repayments.
No Deposit Home Loan Disadvantages:
The lending standards are very stringent and this is not an easy type of loan to get. Your financial history will be thoroughly scrutinised so you need to make sure you’re in a position to meet all the requirements.
If you are self-employed or not on a high income, you may find it hard to get approval, and you may also be restricted as to which postcodes you can buy in but this will vary from lender to lender.
Find out if you’re eligible for a no deposit home loan with iSelect today.