Learn the secrets to borrowing 100%
Did you know that some lenders offer discounts on their no deposit loans?
Of course we all know that every bank and non-bank lender in Australia has their own rates and fees for standard loans and they tend to be all fairly similar in price. However for no deposit finance some banks are way ahead of the pack with interest rates and flexibility that is unmatched by their competitors.
Read on to find out how much of a deposit you need to save, if at all, and find out if you qualify to borrow up to 100% of the value of your new home.
Do I need any savings?
No, you do not always need to have savings. However there are some situations where savings are required.
First Home Buyers: As a general rule if you are a first home buyer then your First Home Owners Grant (FHOG) should cover most if not all of the costs associated with buying a property. The main costs you will incur are stamp duty (depending on which state you are in), conveyancing fees and Lenders Mortgage Insurance or LMI for short. Most purchases under $300,000 do not need any savings, between $300,000 and $500,000 require minimal savings and over $500,000 require around 3.5% of the purchase price as savings. Contact us to discuss if you require a deposit or not.
Second Home Buyers: Due to the costs of stamp duty and conveyancing non-first home buyers usually need to have a minimum of 5% of the purchase price available. This doesn't necessarily have to be saved. A deposit sourced from a gift from your family or from selling an asset is acceptable to some banks. If your income is exceptionally high then we may be able to obtain a personal loan to cover the purchasing costs.
Investors: Because investors do not receive the government's grant and do not receive stamp duty exemptions they will need a minimum of 5% of the purchase price to be able to complete the purchase.
Construction: You can build a house without any savings using a no deposit construction loan if you are a first home buyer. Second home buyers may require some savings to cover stamp duty and other costs. Due to the nature of construction we recommend that you have a small buffer of around $5,000 just in case you go over budget.
Every lender has a different LMI premium
What is Lenders Mortgage Insurance (LMI)?: LMI is insurance that protects the lender in the event that a borrower defaults on their loan. This is a once off fee charged when you borrow over 80% of the property value and is a significant cost associated with no deposit loans.
How much does LMI cost for no deposit loans?: LMI varies depending on the lender you choose and the amount you borrow. As a general rule LMI for loans that are less than $300,000 is very cheap whilst LMI for loans over $500,000 can become quite expensive at around 3.5% of the loan amount. Please contact us for an LMI & interest rate quote specific for your situation.
Because you have to pay LMI, you only receive around 97% to 98% of the property value to put towards the purchase even though the loan is for 100% of the purchase price. Read on to find out how to obtain a real 100% loan by avoiding the LMI.
Can I avoid paying LMI altogether?
Yes you can! Innovative new loans have been created in recent times that allow you to borrow 100% without paying any LMI. This allows you to buy your new home sooner with less in savings.
Quick start no LMI loans: This home loan allows you to borrow up to 100% of the purchase price or valuation without paying any Lenders Mortgage Insurance or Loan Extension Fee. The lender effectively takes this risk on themselves and charges a higher interest rate to compensate. The higher interest rate usually lasts for the first 3 - 4 years and works out to be around the same cost over three years as if you had paid the LMI. The advantage of a quick start loan is that you need less money upfront to buy your property.
Guarantor support: If your parents, a family member or a friend can guarantee your loan then you may be able to borrow 110% or more of the purchase price without paying any LMI. Their property can be used by the bank as additional security for your loan in what is known as a family pledge, fast track or security support application.
In some situations the guarantor can also use their income to support your loan which is known as serviceability support. For example when a student is buying a house his parents may assist him by guaranteeing the loan using a 2nd mortgage on their home as well as by paying part of the repayments. The guarantee can be removed at a later date if certain lending criteria are met.
Can I borrow 100% and consolidate my debts?
Yes you can borrow 100% and consolidate your other debts such as HECs, personal loans and credit cards provided you have a guarantor that can use their property as additional security for your loan. Currently there are no lenders in Australia that can lend more than 100% of the purchase price with a no deposit loan.
Who can borrow 100%?
Buying a house to live in: First home buyers and other people buying an owner occupied house make up the majority of people applying for 100% home loans in Australia. They are looked at favourably by the banks because they tend to look after their property well and are more likely to pay their loan on time.
Investors: Investors are eligible for no deposit finance however they may be required to meet equity requirements such as having a certain amount of equity in another property or to have plenty of cash or shares in their posession. In some cases this requirement can be waived, for example someone who lives with their parents and wants to buy an investment property as their first property rather than a place to live in. In other cases investors can often reduce their loan to 95% of the property value and avoid these requirements entirely.
Credit requirements: Lenders apply very stringent credit guidelines when assessing no deposit home loan applications. We've listed the common rules used by most lenders below:
- Credit history: You must have a perfect credit history with Veda Advantage. No Australian lenders will make an exception to this policy.
- Repayment history: You must be paying all of your current debts such as credit cards, personal loans and rent on time.
- Location restrictions: You must be buying in a major town, capital city or regional centre. One of our lenders is willing consider anywhere in Australia, however most other lenders are very strict about the location that you are buying in.
- Property type: The property you are buying must be a standard type of property such as a house, townhouse, unit or vacant land. As a general rule unusual or unique properties are not acceptable. We have been able to lend for duplexes, inner-city apartments, studios, bedsitters and even company title units in the past for customers of ours that have a good income. If you are not sure then call us and we'll let you know.
- Stable employment: Your employment situation must be stable and ongoing. One of our lenders can consider casual employees, contractors and even people on probation.
- Income: Your income must be high enough that you can easily service the loan.
- Professionals: Professionals such as accountants, lawyers, doctors, vets, nurses, government employees and teachers are highly sought after by lenders because they are well known to be a lower risk than people in other professions. Because of this we can sometimes get the lenders to make exceptions to their normal lending policies for people in these professions. If you aren't in one of these professions don't worry! Lenders can consider anyone for a no deposit loan.
Is it better to save a deposit or borrow 100%?
That depends on the property market you are in. If you are in a market that is increasing in value then more often than not it is far cheaper to borrow 100% than to wait and save a deposit. The saving in LMI is rarely more than the lost capital gains. Most people find it difficult to save a deposit anyway and in 6 months are in the same situation they are in now. For this reason most people prefer to borrow 100% than to save. Don't forget that Australia is not single property market, Brisbane may be increasing in value while Sydney and Melbourne are steady, talk to local real estate agents to find out what is happening near you.
If you are in an area that is stable or is declining in value then it may be better to save a 5% deposit and apply for a 95% loan which has slightly cheaper LMI. If you contact us we can discuss your options with you so you can make an informed decision as to when to apply for your loan.
Do no deposit home loans have extra features?
Yes, no deposit home loans are available with almost all loan features including:
- Professional package discounts
- Wavied application, valuation and monthly fees
- Fixed rates (1 year, 3 years, 5 years, 10 years and 15 years)
- 100% offset accounts
- Unlimited extra repayments (variable rate loans only)
- Redraw facility
- Interest only repayments (up to 5 years)
- Weekly, fortnightly or monthly repayments
- Vacant land, building or construction loans
Note that no deposit finance is not available with a line of credit loan.
How high will my interest rate be?
Not as high as you think! No deposit finance is often available with competitive interest rates and even application fee waivers for some loans. We are able to obtain professional package and basic loan discounts through several of our lenders.
You may pay a higher interest rate if you choose a loan with no LMI payable as the interest rate is loaded by approximately 1% to compensate for the higher risk to the lender.
Which lenders offer no deposit loans?
A wide variety of bank and non-bank lenders offer no deposit finance. These lenders include ANZ, BankWest, CBA, Citibank, Heritage Building Society, Homeside Lending, NAB, St George Bank, Suncorp, Westpac and many more. Our panel of lenders tend to offer special discounts from time to time and so there is no "best" no deposit lender. Contact us and we can quickly help you select the most appropriate lender for you.
Are no deposit loans available Australia wide?
Most no deposit lenders have location restrictions or other postcode restrictions on no deposit loans outside of capital cities and major regional centres. If you are buying in Sydney, Brisbane, Melbourne, Adelaide, Perth, Darwin, Canberra or Hobart then you should have no problem.
Common regional areas that are accpeted by all lenders for no deposit loans are Wollongong, Queanbeyan, Newcastle, Wagga Wagga, Tamworth, Coffs Harbour, the Gold Coast, Sunshine Coast, Cairns, Toowoomba, Townsville, Ipswitch, Bundaberg, Ballarat, Bendigo, Albury / Wadonga, Freemantle, and Geraldton. What if you are outside these areas? One of our lenders will accept no deposit loans in any location in Australia!
How do I apply for a no deposit loan?
As your specialist no deposit mortgage broker we are here to help! Give us a call or enquire online and we can then discuss your situation with you to see if no deposit finance is suitable for you.
If you are eligible then we can usually organise an approval over the phone with one of the lenders on our panel.
