How do I second property with no deposit?
Equity is the difference between your property value and the amount you have owing on your home loan.
- You can generally release up to 80-90% of the value in your property in equity to buy a second property.
- You must owe less than 80% of the property value on your home loan.
- Your mortgage repayment history must be perfect.
- You’ll need to provide your last two payslips.
- You’ll need to provide your most recent group certificate.
- Low doc options are available for self-employed borrowers who can’t prove their income through traditional means.
- Your credit file should be clear of black marks.
Depending on how much equity you have, you can refinance to access this equity and cover the cost of your deposit as well as the other costs of purchasing a property.
This will allow you to borrow up to 105% of the property value.
Call us on 1300 889 743 or complete our free assessment form if you want to get an equity loan to buy a second property with no deposit.
Cashing out is when you draw cash out of your equity and use this as your deposit to apply for a second home loan to purchase a second property.
Generally, it’s best that you provide a letter from your conveyancer confirming that you’re looking for a property or a copy of the Contract of Sale you’ve found one.
Some lenders have cash out restrictions limiting the amount you can cash out from anywhere between $10,000 – $50,000.
Luckily, not every lender has cash out restrictions!
This is where you use your existing home as security for the new purchase, bringing both properties under the one mortgage.
To do this, you must be owing less than 80% of the property value of your home.
There are benefits and drawbacks to cross-securitising such as the requirement to stay within mortgage exposure limits.
Line of Credit
If you’re on a professional package and in a position to do so, you can actually refinance your current mortgage and open a Line of Credit (LoC).
A LOC works very much like a large credit card, and it’s beneficial if you need a deposit to buy an investment property.
Depending on the amount of equity you have and the strength of your financial situation, you can increase your LOC borrowing limit to fund renovation work and general improvements to the property you’re purchasing.
Do you have a strong income, found a great investment opportunity, but can’t quite scrape together the deposit because of your current home loan commitments?
Joint ownership can allow you to buy a second property with a co-borrower who has the deposit to put towards the purchase.
It’s essential to seek financial advice before considering this form ownership because there can be problems when if and when you decide to sell the home, not to mention the ongoing costs of ownership.
Vendor finance or owner’s finance risky and costly.
What about a guarantor home loan?
A guarantor loan is generally only available to first home buyers as a no deposit option.
However, some lenders may allow you to ask your parents for help if divorce, illness or other circumstances outside of your control are forcing you to sell your home and/or downsize.
What if I have some deposit to contribute?
Contributing some of your own savings to the purchase will help strengthen your character from the bank’s perspective and will give you a better chance at approval with more lenders.
Why would I want to buy a second property with no deposit?
Long-term property investment
There’s an old saying that it’s not about timing the market but time in the market.
In saying that, taking advantage of a great investment opportunity when you see it requires you to move quickly.
The market just won’t wait around for you to save the deposit you need so a no deposit option gives you the ability to leverage the equity that’s in your home.
Over the long term, you’re potentially reaping a higher capital growth return by minimising how much of your own savings you put into the purchase.
It also allows you to keep your cash flow fluid so you can invest in other properties or undertake capital improvements to the property.
Having cash on standby is usually a good investment strategy.
House flipping is common among investors with renovation experience who do their research.
The trick is to buy quickly at what you believe to be below market value and undertake minimal renovation to sell at a higher price for a return on investment.
Buying your dream home
Good properties don’t stay on the market for long, whether you’re an investor or a homebuyer.
The first property you buy isn’t typically the one you want to stay in the rest of your life.
It could be that you’re expecting children and want to upgrade to a bigger home or you’ve changed jobs and need to move to a new location.
When there’s a property that has everything you need, using a home equity loan can help you to avoid heartache.
Alternatively, it may be that you’re not in a position to move just yet, but you want to get in early, buy low, and rent out the property in the meantime.
Divorce and separation
Separating from a partner is never easy, but it’s possible to ease the transition to a new property using the equity in the existing home.
This is common for married couples with children where the mother will stay in the family home while the father will move out.
Holiday homes aren’t generally as expensive as the home you live in because they tend to be located outside of major cities.
So it may be possible to use equity to cover all of the purchasing costs.
Bear in mind property purchasing costs
What many second home buyers don’t fully take into account are the property purchase costs.
These costs can amount to anywhere between 3-5% of the property value so you should factor this in when you’re deciding on a no deposit solution.
Essentially, to purchase a second property, you actually need 7-10% of the property value to cover:
- Your minimum 5% deposit.
- Stamp duty
- Property title transfer fee.
- Registration fees.
- Conveyancing fees.
- Inspections including building/strata and pest.
- Home loan set up fees.
- Lenders Mortgage Insurance (LMI).
Want to buy a second property with no deposit?
Call us on 1300 889 743 or fill in our online enquiry form to find out if you can use the equity in your home.