So you want to buy a house at a young age but don’t have enough deposit…. What can you do?
With young home buyers, most lenders want to see at least 5% of the property value of your new home in genuine savings saved over a minimum of 3 months, preferably 6 months.
The lenders consider genuine savings to be money saved consistently over a period of time, constantly increasing – no withdrawals and no large amounts being deposited (such as sale of a car or tax cheque etc). Large sums may need to be in the bank for at least three months to be considered.
If you haven’t been saving consistently then there are a few alternative options:
Ask family for help
If you have parents or relatives who can help you get your start in the housing market, get a financial gift to cover the difference between what you have and what you need for a deposit. This gift should be exactly that – not repayable in the future. You will need a statutory declaration stating this signed by your parents or relatives and witnessed by a JP or commissioner of declarations. In this situation, the lender may also insist on more than a 5% deposit. It could be closer to a 10% deposit!
Get a guarantor
If your family can’t help you with a financial gift but they have a home of their own that they could use as a second security they can still help to get you into the property market. They may use the equity in their home and go guarantor for you. The loan could then be 100% of the purchase price in your name with your relative having a limited guarantee of 20% against their home. This may also save you the expense of Lenders Mortgage insurance.
Tax concessions could help
For first home buyers, there may be a stamp duty concession that will reduce your costs. For this information, you will need to check your own state regulations (NSW, VIC, QLD, NT, ACT, WA, TAS & SA).
Pay your rent on time
If you are buying a house at a young age some lenders will also look at the fact that you have been paying rent and will use your ability to pay rent as proof that you can afford a loan. They may not worry so much about where your deposit came from or that you haven’t been saving long enough. This requires you to be renting from an agent (not your parents) who can provide them with a rental ledger that shows how well you have been paying your rent – again, preferably over a six to 12 month period.
So, now we have a deposit, but the repayments look a little high?
There are ways to make your home loan more affordable in the first couple of years until your income covers it more easily.
Start with an interest only loan
You may be able to have “Interest Only” payments for a short while. This means that while you are only paying the interest on the loan (not actually paying off the property value), you may still get into the home of your dreams a little faster. An interest only payment can be made for up to 5 years before you will need to start paying down on the principal of your loan so it’s an interim solution.
Rent out rooms
Have you thought of buying a slightly bigger house than you actually need and having boarders in the spare rooms? Again, helping out in the short term to keep making payments and still having money in your pocket.
If these options don’t interest you, then you should look at what you can comfortably afford and maybe buy a smaller place or look at suburbs that are a little cheaper for young home buyers and then use this property as a stepping stone to the home of your dreams later on.
Did you receive any help in saving your deposit as a young home buyer or did you do it all on your own? Share your experience in our comments below!
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