04 Apr 2018
Is it Possible to Buy a Property with No Deposit?
With property prices higher than they’ve ever been, it’s no surprise that the new generation of homebuyers is finding it next to impossible to get into the property market.
Some lenders will lend you 90% or even 95% of the property value. But keeping in mind current property prices, even saving that 5% deposit could take years. That could put potential homebuyers at a disadvantage.
Did you know, there is a way you could borrow 105% of the property value, without a deposit?
You could do that with help from a guarantor, like your parents or close family members. More and more parents who have paid off their mortgages or have substantial home equity are helping out their kids by acting as a guarantor.
Another big benefit for you as the borrower is that you can avoid having to pay the lender’s mortgage insurance (LMI), a premium that gets added to your loan when you’re borrowing more than 80% of the property value.
Also known as family pledge loans, not all lenders offer this type of loan. Any close family member can agree to act as a guarantor, but it needs to be a well-considered decision because the guarantor becomes legally liable for repaying the debt if the borrower defaults on their repayments. The lender may waive this security guarantee once the borrower has paid down their loan and brought the loan balance to below 80%.
Wondering why you would need to borrow 105% of the property’s value?
When you’re buying a house, you should most importantly, consider the additional costs associated with the actual purchase.
That’s over and above the property price and could include loan application and setup fees, building and pest inspections, conveyancing, stamp duty, connecting service utilities and more. Generally speaking, these extra costs could quickly add up, and it’s a good idea to allocate at least 5% of the purchase price to cover these expenses.
In summary, once the guarantor has met all the lender’s criteria, the borrower could qualify for a home loan pre-approval and also avail of competitive interest rates. Even if you have saved up a deposit, a guarantor can give you a boost acting as a guarantor for part of the amount.
As always, keep in mind that a home loan is a long-term financial commitment. Whether you’re a borrower or guarantor, you should seek professional advice before you commit.
Mortgage House
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.
But don’t worry, we can help with that.
If you’re thinking of buying a home, you can contact us for information about the best options for you when it comes to your mortgage.