18 Jul How to buy a property with less than 20% deposit
Buying a house is a dream that many people have. Some want to buy a property to begin a family or have secure living arrangements, while others would like to purchase an investment property to start or add on to the property portfolio. Whichever your reason is, there are options in getting a mortgage loan.
A common misconception is that you must saved at least 20% of the property value as deposit in order to get a mortgage – however this is not always the case.
Ideally, a home loan broker would like to see clients come in with 20% deposit when they are ready to apply for a 80% of the property value mortgage. However it is still possible to assist clients if they do not have this amount saved. There are lenders willing to accept with 15%, 10% or even 5% saved deposit.
Lenders Mortgage Insurance (LMI)
With lower deposit available, comes higher risk for the lender in the event that you are unable to service your loan. So, to ensure the lenders are covered in the event that something happens, it is most likely that they will recommend or have as a condition that Lenders Mortgage Insurance (LMI) is required for the loan.
LMI is an insurance that covers the lender – not you. In most cases when you have a deposit of less than 20%, the lender will have the insurance added onto your mortgage. It is an additional cost that you will need to wear, however it can be included in the overall mortgage amount, which means that you can pay it off over the duration of your loan and not have to pay it all upfront.
Do you know our credit rating also plays a large part in both being able to get a mortgage and also being approved with smaller deposit saved?
To be approved for a mortgage, the lender needs to see that you have a good credit rating, you have not regularly defaulted on previous payments and you do not have a large amount of debt that you are already trying to pay off.
Prepare for other costs
The purchasing of a property has more costs than just the mortgage itself. There are a few costs involved in the start of the process that need to be accounted for and are not typically included in the mortgage amount.
Costs for inspections by builders, pest control and architects if needed will need to be paid for by you. Property costs such as rates and connection fees will also need to be organized. You will also need to engage a conveyancer or solicitor to help the legal aspects of transferring the ownership of the property.
Having the money aside for these can show the lender that you are prepared and organized for the purchase.
If you do not have a 20% deposit saved, don’t stress. There are ways to be able to buy a property and you should not count yourself out. Give us a call at 0488 814 148 for a chat to see how we can work together to bring you that step closer to your dream.