24 Feb How to get a home loan without a 20% deposit
If you’re trying to buy your first property in Sydney or Melbourne, you may feel quite discouraged when you think about the fact that you’ll need a 20% deposit. In both cities, if you want to buy close to the centre of the city, that could mean saving as much as $200,000 – $250,000 if you’re buying a house. There isn’t much price variation between houses and apartments, so your required deposit won’t be much different. Due to lending regulations, most lenders will not lend to anyone if the unit is under 50SQM and that leaves you with limited lenders, which means you could pay higher interest, especially if you need to go with a non back lender.
So that being the case, how can you get onto the property ladder without a 20% deposit? Well, that’s exactly what we’re here to help you with today.
Buy with your parents
Take out a mortgage with your parents isn’t an option for everyone, but if your parents already own a home, and have enough equity, then they may qualify for a second mortgage on the property. Your income will be assessed by lenders along with that of your parents. The more equity they have in their property, the more you will be able to borrow. You should note though that other factors will be taken into consideration and should always seek professional financial and legal advice before making any decisions related to purchasing a new property.
If your parents are uncomfortable signing the mortgage contract, then they could lend you the money if they have it saved up. That will allow you to only borrow what you can afford based on your income, which reduces the risk if something were to happen to your income.
Buy with friends
This comes with risks and benefits that you will need to consider prior to signing onto a mortgage with friends. First you’ll need to establish if you’re going to rent out the property or if you’re going to live in it. If you live in it then you need to consider that you can’t evict each other. If you buy as an investment, you’ll need to agree on where you’re going to buy and what your budget is. In the name of fairness, it would be best to assess your borrowing capacity on the income of the person who earns the least. That will ensure you have equitable distribution and ownership of the property rather than person potentially paying more on the mortgage than the other.
Lenders Mortgage Insurance
If you don’t have the 20% deposit then one option is to take out Lenders Mortgage Insurance. Due to the increased risk to your lender, the insurance acts as a safeguard and minimizes the risk for the lender. It’s most commonly required when the purchaser has a deposit of less than 20%. If you want to get onto the property ladder quickly then this is another option for you and allows you the freedom to purchase a property without signing up to a mortgage with someone else.
If you’d like further information then feel free to get in touch with the Aspirus team for a confidential discussion.