How do I increase my chances at approval with a low deposit?

Any general questions you might have in regards to loans and finance.
Reilly
Posts: 3
Joined: Mon May 27, 2019 4:53 pm

How do I increase my chances at approval with a low deposit?

Postby Reilly » Mon May 27, 2019 4:54 pm

We’ve been aggressively paying off our credit card balances and our car loan balance in preparation to buying our first home. The problem is we’ve only managed to save up around 5% or $28,000 for a deposit. We’ve never owned a property before, and are hoping to purchase a house in the $450,000 - $500,000 range. How do I increase my chances at approval with a low deposit?

User avatar
Otto Dargan
Mortgage Specialist
Posts: 7728
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: How do I increase my chances at approval with a low deposit?

Postby Otto Dargan » Mon May 27, 2019 5:29 pm

Hello Reilly. Welcome to the forums.

Low deposit home loans or high Loan to Value Ratio (LVR) home loans are a great way for borrowers to enter the property market and own their first home. Most lenders have strict lending criteria for borrowers with small deposits but generally speaking, if you can meet the following requirements, you’ll have a good chance of getting approved for a 5% deposit home loan:
  • Good income: Lenders tend to be more strict when assessing your means of paying off a 5% deposit home loan, otherwise known as your ‘serviceability ratio’.
  • Stable employment history: Although there are exceptions, lenders want to see you’ve been in the same job for at least the past 6 to 12 months.
  • Clear credit history: Lenders prefer a clear credit file free of defaults and minimal enquiries (some exceptions).
  • Strong asset position: Lenders will assess your income to asset position relative to your age. They like to see if you’ve been working for a few years that you’ll have a car and a decent amount of savings relative to your income.
  • Little to no existing debt: Having more than one credit card and/or personal loans is a red flag for most lenders.
  • Proof of 5% in genuine savings: Generally, consistent deposits into a savings account over a period of 3 months are considered genuine savings. There are some exceptions to this.
  • Unusual property or location: Lenders prefer easily marketable properties as security located in prime locations. They are conservative when it comes to property located in high rise units and small or regional.
When lenders assess your borrowing power for a mortgage they assume your credit card debt to be the full available limit instead of the balance. So, it makes sense to close some of your credit cards to reduce your total credit limit if income serviceability may be an issue for you.

Give us a call on 1300 889 743 or fill in our free assessment form to find out if you qualify for a low deposit home loan.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Reilly
Posts: 3
Joined: Mon May 27, 2019 4:53 pm

Re: How do I increase my chances at approval with a low deposit?

Postby Reilly » Mon May 27, 2019 5:59 pm

Thanks for clearing that up. As I understand it, we’ll be subject to LMI since we’re borrowing at a high LVR. How much will it be? Is there a way we can avoid LMI? If not, do I have to pay the LMI upfront at settlement?

User avatar
Otto Dargan
Mortgage Specialist
Posts: 7728
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: How do I increase my chances at approval with a low deposit?

Postby Otto Dargan » Mon May 27, 2019 7:54 pm

Hi Reilly,

Lenders Mortgage Insurance (LMI) is generally applicable when borrowing over 80% of the property value. There can be huge differences in your LMI premium depending on the LVR and the lender you choose.
Let’s say, you were borrowing $475,000 to purchase a $500,000 house at 95% LVR, the LMI premium can be anywhere between $14,450 and $16,198. By choosing the right lender you can save up to $1,748.
You can use our LMI calculator for a more detailed breakdown of LMI premiums from six lenders including CBA, NAB and ANZ.

Some of our lenders allow you to capitalise the LMI, which essentially means adding the LMI on top of your home loan. This way, you won’t have to pay the LMI upfront.

You may qualify for waived LMI or a reduced premium if you’re able to meet the below requirements:
  • You’re not borrowing over $800,000 and must be for no more than 95% of the property value plus LMI.
  • You’re borrowing to buy a property and not for refinancing an existing mortgage.
  • You have at least 5% in genuine savings.
  • The main income earner must have been in their job for at least 2 years (the borrower with the lower income must be over 6 months in their job, if applicable)
  • Your credit file should be free of any black marks with a solid credit history.
  • The property must be located in a capital city or a major regional centre.
Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Reilly
Posts: 3
Joined: Mon May 27, 2019 4:53 pm

Re: How do I increase my chances at approval with a low deposit?

Postby Reilly » Tue May 28, 2019 1:02 pm

I’m also trying to figure out how much funds we would need to complete the purchase? We’ll be receiving the stamp duty exemption for established properties. Can I borrow more to cover the extra costs of purchasing if needed?

User avatar
Otto Dargan
Mortgage Specialist
Posts: 7728
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: How do I increase my chances at approval with a low deposit?

Postby Otto Dargan » Tue May 28, 2019 1:57 pm

Hi Reilly,

Stamp duty is the largest single expense when buying a property. Luckily, as a first home buyer purchasing an established property, you’ll be exempted from paying stamp duty for a property valued up to $650,000 and duty concessions for properties valued between $650,000 and $800,000 in NSW.

You can use our property costs calculator to get an estimate of government fees involved and it also lists other costs such as conveyancing fees, inspection fees, loan fees etc.

If needed, one of our lenders can offer an additional loan facility of up to $20,000 to cover the additional costs of buying a home. Although the interest rates are the same as your home loan, you would have to pay back the amount in a shorter period of time. This is only suitable for borrowers with high income because the repayments can be quite high.

Give us a call on 1300 889 743 or fill in our free assessment form to find out if you qualify for a home loan.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts


Return to “Home Loan Forum”

Who is online

Users browsing this forum: Aldenpaw, BrantPl, BrianAbila, Davinnort, Derikpype, GalenKn, JerodMary, KeganThib, Kevenfum, RamonMaw, RidgeNits, Rogerfrivy and 2 guests