The struggle to save can be real. But what happens if you don’t have any deposit at all? Let’s take a look.
You’re working hard to save for your first home but unexpected bills keep popping up, and your deposit is getting nowhere. If that sounds like you, it’s important to know where you stand as a “no deposit” first home buyer.
No deposit home loans
There’s no getting around the fact that most lenders do not offer true “no deposit” home loans. Among those that do, you’ll likely need to meet some very strict criteria including having a squeaky clean credit record and a very stable work history. You could also be asked to pay a higher interest rate.
But wait – all is not lost! It may be possible to take out a loan with as little as a 5% deposit. It is likely to mean paying lenders mortgage insurance, however this could be your stepping stone into the property market.
If you’re finding it a struggle to raise even a small deposit, it’s time to get creative. Other solutions may be available.
One option can be to use a windfall, such as an inheritance or a monetary gift from family members. Lenders usually like to see that you saved up for a deposit because it shows that you will be able to meet your loan repayments, but some may be willing to accept cash gifts as deposits. Conditions can apply. As a guide, the lender may ask for a statutory declaration stating that the money is being handed over to you unconditionally.
Bring the family onboard
Of course not every family has the cash available to help out with your first home deposit. There may be another option though.
It could be possible for a family member to act as a guarantor for your home loan. This is where the guarantor offers security in their own home as additional collateral for your loan.
The guarantor doesn’t hand over any money, rather their guarantee provides extra reassurance for the lender that they can recover their money if you default on the loan. Do note though, agreeing to be a guarantor is a serious commitment because if you are unable to pay off the loan, the guarantor will be held responsible for any remaining repayments.
If a family member is willing to act as guarantor, it can provide a valuable advantage. If the level of security they stump up is worth more than 20% of your home’s purchase price, you may not have to pay lenders mortgage insurance, and that can be a big saving.
Weigh it all up
From a financial perspective, buying with no deposit is something to carefully consider. You will be borrowing the full value of your home, and that can see you pay more interest over the life of your loan.
The key can be to weigh up whether you’re happy to go ahead with your first home now – and learning about the options available to you, or if it may be better to have a go at growing more of a deposit. Your Aussie Broker can walk you through the options you have available for your personal circumstances.
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- Chapter One : Getting started
- Chapter Two : Your Dream Home
- Chapter Three : Money Matters
- Chapter Four : Ways to Purchase
- Chapter Five : Understanding Interest Rates
- Chapter Six : Understanding Home Loans
- Chapter Seven : Lending Sources
- Chapter Eight : Getting Your loan
- Chapter Nine : Choosing a Home
- Chapter Ten : Steps to Settlement