Does a 100% home loan with no LMI (Lenders Mortgage Insurance), no deposit and no parental guarantee sound too good to be true?
One of our lenders is offering eligible professionals looking to purchase an owner-occupier property exactly just that.
How does a 100% no LMI home loan work?
The key features of this 100% no LMI home loan are:
- You can borrow up to 100% of the property value (no guarantor required)
- No LMI (save approx. 4.5% of the property value), e.g. on a $500,000 loan, you’re saving $22,500 in LMI fees
- Interest rate is approximately 2% higher than standard home loan rates
- The rate drops to a competitive variable rate once you owe less than 80% (extra repayments or property going up in value)
- Available only for owner-occupied properties
- Approximately $3,000 in set up fees
How do I qualify?
The approval criteria for a 100% home loan with no LMI are slightly extensive:
- University education, bachelor degree or higher (no TAFE, diploma etc. is acceptable)
- Minimum 3 years in industry (not necessarily in the same job) for the primary income earner
- Must not be on probation
- Professional role/industry (Doctors, Lawyers, Accountants, IT, Finance, Engineers, Mining, Nurses etc.)
- No minimum income requirement, however, your borrowing power must be strong to get approved
- Maximum loan of $1.3 million and a minimum loan amount of $150,000
- Minimum Equifax Score of 650 (Clean credit history)
- Australian Citizen / Permanent Resident – living and working in Australia
- High rise properties and properties located in smaller towns are acceptable
- No construction or investment loans. Off-the-plan properties are acceptable once the final occupancy certificate is issued
- A personal loan can be used to pay stamp duty (conditions apply)
We’ve summarised the main approval criteria above however there’s much more to it than that.
Will I get approved?
Give us a call on 1300 889 743 or fill in our online assessment form to find out if you qualify for a 100% home loan with no LMI.
Is this right for me?
If your parents own real estate in Australia, then a guarantor loan is going to be a better option for you.
However, if you do not have a guarantor, then this home loan is a great way to get into the property market.
We find that people who are struggling to save a deposit because they are paying a significant amount in rent can use this home loan to get into the market now.
In many cases, if they don’t take action, then they stay stuck as a tenant forever.
This product is an excellent idea, especially if the property market is rising. Why?
Because if the market increases by 10%, then a $500,000 property will go up by $50,000. So waiting becomes far more expensive than paying a higher interest rate.
Why does my borrowing power need to be strong?
The home loan is set up as two loans, i.e. split 80/20 when borrowing the full purchase price.
So one portion of the home loan will be for 80% of the property value over 30 years and another for up to 20% of the property value over 10 years.
Since the repayments are higher than usual on the 20% portion due to the shorter term, you’d need to have a strong borrowing power to be able to afford the higher repayments.
Fortunately, we can consider 100% of overtime income and 100% of bonus income as long as it is in the contract and the income can be evidenced.
How much can I borrow?
Generally, a typical single borrower earning $180,000 p.a. with no existing debt (for simplicity) can borrow up to $1,204,433.
However, the serviceability (borrowing power) calculation is stricter than usual with this home loan due to the shorter loan term as well as the high assessment rate used.
Under this structure, the same borrower is only able to borrow up to $918,504. That’s a difference of over $300,000 in the borrowing power.
Similarly, your repayments are also higher due to the accelerated repayment schedule of the second mortgage (the shorter term on the split portion or 20%).
The home loan is designed this way to enable you to pay down 20% as quickly as possible and build up your equity.
For a full breakdown of ‘how much you can borrow’ as well as a full repayment schedule, please give us a call on 1300 889 743 or fill in our online assessment form.
How can I get to a low rate faster?
You would then pay LMI however as LMI is relatively inexpensive for a 90% loan you should be better off.
Alternatively, once the LVR hits 80%, the rates are dropped to a competitive variable rate:
- If you repay down to 80% or;
- If the market goes up, then a re-valuation can be done to see if LVR is below 80%.
Generally, the discharge of the second mortgage will have an admin fee.
Does it have two separate interest rates?
No, you’ll have a single blended interest rate with only one repayment.
Besides, you can also choose a suitable payment cycle that suits you with monthly, fortnightly or weekly repayment cycles available.
What will my repayments be?
A 100% no LMI home loan for professionals has an accelerated repayment schedule and amortization done so that your second mortgage (20% portion) is paid out within 8 years even though it may have a ten-year term.
Your estimated monthly repayments with a 100% LVR home loan at different price points are:
- Property purchase price of $500,000: $3,202.57 per month*
- Property purchase price of $600,000: $3,843.08 per month
- Property purchase price of $700,000: $4,483.60 per month
- Property purchase price of $800,000: $5,124.11 per month
- Property purchase price of $900,000: $5,764.62 per month
- Property purchase price of $1000,000: $6,405.14 per month
- Property purchase price of $1,100,000: $7,045.65 per month
- Property purchase price of $1,200,000: $7,686.16 per month
- Property purchase price of $1,300,000: $8,326.68 per month
*Calculated using a blended rate of 5.69% p.a.
Properties with a purchase price over $1 million are considered on a case by case basis.
Repayments are initially higher but drop to a competitive variable rate automatically when your LVR drops below 80%. There are no early repayment fees, so you’re encouraged to pay down the loan faster.
Which industry professionals are accepted?
Typically, high income professionals working in the below-mentioned industries are usually accepted:
- Information Technology
- Artificial Intelligence
- Data Science
- Accounting/ Finance
Not on the list?
Typically, white-collar professionals such as network engineers, teachers, university lecturers or professors, nurses, software developers, executives, managers are also accepted.
All other industry professionals are considered on a case by case basis.
Frequently asked questions (FAQs)
Are overseas university qualifications accepted?
Yes, overseas university qualification equivalent to an Australian bachelor’s degree or higher is usually accepted.
Is there a minimum income threshold to qualify?
No, there is no minimum income threshold to qualify for this home loan.
However, the minimum loan amount is $150,000.
Can I make a lump sum payment?
Yes, you can.
Any extra repayments you make will go towards paying off the second mortgage first.
Are all types of borrowers accepted?
- PAYG: Yes
- Self-employed: Yes
- Individuals/ Companies / Trusts: Yes
What if I’m a self-employed contractor?
Yes, self-employed contractors with 2 years Tax Return, 2 years of ABN, and who’ve been in the same industry for 3 years are accepted.
Moreover, if you’ve recently switched from PAYG to self-employed and are doing the exact thing with the same employer, then there’s no need for a minimum ABN and Tax Return.
Still, the lender will need to see the PAYG Tax Return to verify that the income is inline.
Case study: New ABN contractor
Meet John, he wanted to refinance his owner-occupied property plus take out some equity for non-structural renovations.
The issue was that John was formerly PAYG and had moved into self-employed IT contracting only 3 months ago. With the new 1 year contract, his income had effectively doubled.
During the assessment, it became evident that John had strong income, minimal debt position, a good credit score as such, he was highly recommended for approval.
Furthermore, his loan to value ratio (LVR) was a modest 67%, even with the $50,000 cash out.
Using the invoices as income verification from the new ABN, John was conditionally approved for the full amount of $483,000, pending a satisfactory valuation with an indicative interest rate of 3.14% p.a.
Is the 100% no LMI home loan only for first home buyers?
No, this is available for all professionals purchasing an owner-occupied property.
We are also seeing more and more divorcees purchasing owner-occupiers with this no deposit home loan.
Is an off-the-plan property acceptable?
Yes, off the plan is acceptable once an occupation certificate is received.
However, construction, vacant land and investment properties are not acceptable.
Does the 100% home loan with no LMI come with an offset account?
Yes, the 100% home loan with no LMI for professionals comes with a 100% Offset account as well as:
- Unlimited extra repayments
- Free online redraw
- Visa Debit Card
- Online banking
- Unlimited transactions via the internet, phone, BPAY, Visa Debit Card, ATM
Are refinances available?
Unfortunately, refinances are currently not available with this home loan.
Is there a 100% LVR fixed rate option?
Unfortunately, a fixed rate option is not available at this point.
What are the risks?
When borrowing at a high LVR is inherently risky as one has to consider ‘what happens when property prices go down?’.
Since you’re borrowing 100% of the purchase price, if the market value of your property were to fall before you’ve built up enough equity, you’d essentially be stuck as a mortgage prisoner.
You wouldn’t be able to refinance away to a different lender as you wouldn’t have enough equity.
Nevertheless, if you find a house that is suitable for you and you can see yourself and your family living in the house for the next five to ten years, then you don’t have to worry about what’s happening to house prices over the short term.
Let’s meet John, who qualifies for this home loan and he’s looking to buy a $1 million property at 100% LVR.
Under this product, the home loan is split into three facilities:
- Facility 1 – 40% of the home loan: $400,000 (30-year loan term with an interest-only term of 5 years)
- Facility 3 – 40% of the home loan: $400,000 (30-year loan term)
- Facility 3 – 20% of the home loan: $200,000 (10-year loan term)
The interest rate is blended, that is to say, you’ll have a single rate and one repayment.
For this example, we’ll use a blended interest rate of say 5.69% p.a.
In this case, John’s minimum monthly repayment will be $6,405.14
If he makes the minimum repayments after five years, his loan to value ratio (LVR) will be 88.70%, and he’ll have equity of $113,001 in his property.
Between year 7 and 8, his LVR will fall below 80% assuming property prices remain constant; he’ll revert to the Standard Variable Rate (drop down rate at the time of writing this – 3.19% p.a.).
Due to the accelerated repayment and amortization done, the third split/facility (20% portion) is paid out within 7-8 years even though it may have a ten-year term.
Moreover, he can reduce his rate at any time, and there are no costs if he pays down to 80% before the end of the term.
Alternatively, he’s also able to pay off his loan as quickly as he wants with the offset account.
Get started on your home buying journey
Whether you’re tired of paying someone else’s mortgage or just want a place of your own, this 100% home loan with no LMI, no deposit and no guarantor is designed to help you buy a property now.
To get started on your home buying journey, give us a call on 1300 889 743 or fill in our online assessment form today.