Most people think that you need a huge deposit in order to get approved for a home loan but the truth is that you can still borrow up to 95% of the purchase price! In fact, in some cases, borrowers may even be able to borrow up to 105%, allowing them to own their dream home without the need for a deposit or money to cover stamp duty and other costs.
How can I get a 95% home loan?
Believe it or not, the big four banks are more than ready to approve loans up to 95% of the property value as long as you meet certain requirements:
- A clear credit history
- Stable employment history
- Good income
- Strong asset position
- You should be able to show proof of 5% in genuine savings (there are some exceptions to this)
- Little to no existing debt
Banks are always conservative when lending money so you may sometimes have trouble getting approved for a loan if the property you want to buy is in a small town, a high rise unit in the CBD or any other type of “non-traditional” property.
Why should you borrow more?
Suppose that you wanted to buy a house worth $500,000, you could apply for a 95% home loan and borrow up to $475,000 which means that you would only need $25,000 to complete the purchase. Don’t forget about lenders mortgage insurance (LMI) though: a 95% home loan for a $500,000 property could cost you up to $18,000 in LMI!
LMI is a fee charged by the lender when your loan is considered risky, usually charged if you are borrowing 80% or more. Try our LMI Calculator to discover how much you would have to pay in LMI for your property.
Fortunately, lenders will usually capitalise LMI which means that they will add the fee on top of your loan. This means you can use a smaller deposit. Some lenders cap this at 95% but a few may lend you up to 97% with capitalised LMI.
Call one of our expert mortgage brokers on 1300 889 743 today to find out if you qualify for a 97% home loan.
How can I borrow 100% or more?
100% and 105% home loans are only possible if you apply for a guarantor loan. With this type of arrangement, your parents put up their property as security against your home loan. Your parents can even have an existing mortgage as long as they have enough equity in their property. Not only do you not require a deposit but you can save thousands more since you may not have to pay the LMI premium!
Once you can afford your mortgage repayments, you can then work on removing the guarantee. In most cases, you can ask the bank to remove the guarantee once you have paid back 10% of the loan (ideally 80% or less) and have not missed a payment in the last six months.
What if I only want to borrow 80%?
Borrowing less than or up to 80% of the property value is a great option if you have enough saved up. However, if you are doing this just to avoid paying LMI you should know that you can still get your LMI waived for 85% home loans. Currently, two of our lenders are offering this fantastic deal for loans up to $1.5 million dollars!
Even if you are borrowing more, we can still get discounted LMI by negotiating with our lenders.
Do you feel like you’ve been saving for a deposit forever? Is your dream home going on auction soon? Call us today on 1300 889 743 or fill in our free assessment form and let us help you buy a home with a small deposit!