It’s possible to buy an investment property with no deposit but it isn’t as simple as it used to be.
105% guarantor loan
A guarantor loan is the best way for you to buy an investment property without a deposit. The benefits are:
- You don’t need a deposit. You can borrow the full purchase price and costs.
- You don’t need to pay an LMI premium.
- You can qualify for exceptional interest rate discounts.
- You can buy a property now rather than missing the boom!
How does it work? The bank accepts a limited guarantee from your parents or another relative, which is secured by a property that they own. Because the bank has additional security, they’re happy to lend the full amount required.
Do I qualify to borrow 105%?
While there are many criteria that you must meet to qualify for an investment property loan. The additional criteria that you must meet for a guarantor loan are:
- Your parents (or other relative) must own a property in Australia which can be used as additional security for the loan.
- You aren’t required to have genuine savings.
- You can’t buy multiple investment properties, only one (some exceptions apply).
- You must not have excessive unsecured debts such as credit cards (some exceptions apply).
- Your parents must be working or be a self funded retiree (some exceptions apply).
Do you need help with a no deposit investment loan? Please call our mortgage brokers on 1300 889 743 or fill in our free assessment form.
Getting an investment loan with a small deposit
95% investment loan
Did you know that borrowing 95% of the property value (95% LVR) is actually quite difficult for an investment property?
This is due to a number of reasons:
- You must have 20% equity in another property (some exceptions apply).
- You must have 10% of the purchase price in genuine savings (some exceptions apply).
- Most lenders will only allow you to borrow 95% including LMI, not 95% plus LMI.
- There are lenders that allow exceptions to all of the above requirements.
Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will call you to discuss which loans are suitable for your situation.
An additional loan
One of our banks can lend 90% or 95% of the property value and also approve a small unsecured loan to assist you with paying for costs such as stamp duty.
This unsecured loan is at the same interest rate as the home loan, so this works out to be a very effective way to buy a property with a small deposit.
Squeezing your equity
Did you know that in some cases you can refinance your property portfolio up to 95% of their value? By squeezing more equity out of your existing properties you can get a bigger deposit and buy more properties.
We can help you do this in a few ways:
- We have several lenders that can refinance an investment property up to 95%.
- We have lenders that accept equity in another property as genuine savings.
- We can arrange free bank valuations with several lenders, allowing you to proceed with the lender with the highest valuation.
Vendor incentives or kickbacks
It isn’t uncommon for builders or developers to offer incentives, rebates or kickbacks to buyers which can be used as part of their deposit.
Unfortunately, the bank valuers will reduce their valuation to take these incentives into account. As a result this method of financing your deposit isn’t normally effective.
In some states of Australia, it’s possible for investors to receive a grant to buy a newly built investment property.
If you have a small deposit then this can be a good way for you to get into the market right away rather than saving a large deposit.
Why borrow 100%?
We recognise that saving a deposit for an investment property in today’s society of escalating costs is difficult. Even with a high income it can be tough to enter the property market.
So why do people currently prefer to borrow 100% rather than to save a larger deposit?
- To buy more properties: Many professional investors grind to a halt when they run out of money to fund more deposits, even though they can easily afford the monthly repayments. By reducing the amount of money required to buy a property, they can vastly increase the number of properties that they can invest in and also maximise their capital gains.
- Negative gearing benefits: If you’re on a good income then the chances are that you’re paying a high percentage of your wages in income tax. By borrowing 100% of the property value, you can buy a property right now with the maximum possible leverage and reduce your tax bill right away.
- To avoid using cash: Often investors intend to renovate a property, have a business with a high turnover or have other personal needs that require them to avoid using their cash as a deposit for their investment property. By borrowing 100%, they retain their money for these other uses.
- To avoid using equity: Large property portfolios can become complex with many loans from different lenders secured by different investments. By borrowing 100% you can avoid cross securitising your properties and in doing so simplify your portfolio. Other investors prefer not to use their family home as security for their investment loans.
Can I borrow the stamp duty?
You can only borrow more than 100% of the purchase price if you own another property that can be used as additional security or if your parents guarantee your loan using a property that they own.
Before the Global Financial Crisis (GFC), there were specialist 106% investment loans from First Permanent Building Society. First Permanent became a casualty of the credit crisis in 2008 and ever since then the only way to borrow over 100% of the purchase price has been with another property as additional security.
Can I buy an investment property if I don’t own a home?
Yes, you can buy an investment as your first property. You’ll need to show a stronger financial position than most no deposit home buyers. Although you don’t need to show any savings you should not have too many unsecured debts such as credit cards and personal loans.
Government grants for first home buyers vary between different states. As a general rule first home buyers don’t receive the first home owners grant if they don’t intend to live in the property that they’re buying. However, they may receive the grant at a later date when they do buy a home to live in. Please refer to your state government for more details.
In some states, there are grants for investors who are buying or building a new property which you may be eligible for.
How can I borrow 100% and pay no LMI?
In the past there was a Quick Start Investment Loan offered by St George Bank that allowed investors to borrow 100% of the property value without paying LMI. This product was withdrawn during the GFC, so it’s only possible to borrow 100% with no LMI using a guarantor loan.
This Quick Start Loan was set up with the bank taking on the risk themselves instead of obtaining Lenders Mortgage Insurance. Because of the higher risk, the bank charged investors a higher interest rate. The rate reverted to a lower interest rate after a few years, so overall a Quick Start Loan was no more expensive than a home loan with LMI.
Some professionals may qualify for a no LMI home loan if they have a small deposit.
Are all property types accepted?
As a general rule, investment loans with a small deposit need to be secured by normal properties that are readily saleable in good locations. Location restrictions may apply to smaller towns or areas with struggling economies.
So what types of properties are’t accepted for an investment loan with a small deposit? Properties such as rural acreages, serviced apartments, student accommodation, company title units, studio apartments, inner city units, retirement units and multiple dwellings on one title are very tough to finance.
However, with a guarantor loan, it may be possible to borrow 100% or more for a property that would not normally be accepted as security.
If in doubt, please check with us before you make an offer on a property.
Will I pay a higher interest rate?
100% investment loans with a guarantor have the same discounted interest rates as normal home loans!
If you’re borrowing over $250,000, some of our lenders will even offer the same professional package discounts that are available with other home loans.
However for a 95% investment loan, you may pay a higher interest rate with some lenders.
How do I apply for an investment loan?
We’re no deposit lending specialists and we have a passion for property investment. We’d love to help you with your next investment so why not complete our free assessment form or call us on 1300 889 743 and find out what we can do for you.