Low-deposit home loans provide an opportunity to purchase a first property without the need for a traditional deposit. At Intuitive Finance, we offer expert guidance to help you navigate the complexities of low-deposit home loans, ensuring you secure the best option for your financial needs.
What are Low-Deposit Home Loans?
Low deposit home loans are available in the form of first home deposit schemes, guarantor home loans, and lenders offering 5% deposit home loans. The government introduced the first home guarantee, which functions similarly to low-deposit home loans but is specifically for first-home buyers who will use the property as their principal place of residence.
Guarantor loans are another option offered by lenders, with no or low deposit options. Guarantor loans provide lenders with security with a guarantor, often a family member, agreeing to cover the loan payments if the borrower is unable to make them.
Types of Low Deposit Home Loans
First Home Guarantee
The First Home Guarantee (FHBG) is an Australian Government initiative designed to support eligible home buyers in purchasing their first home sooner. Administered by Housing Australia, the FHBG allows eligible buyers to secure a home loan with a deposit as low as 5% without needing to pay Lenders Mortgage Insurance (LMI). This is achieved by Housing Australia guaranteeing up to 15% of the property value, enabling the buyer to obtain a loan from a participating lender.
To qualify, applicants must be first-home buyers or previous homeowners who haven’t owned property in Australia in the past ten years. They must also meet specific income criteria and intend to live in the purchased property as their primary residence. The scheme is available for various properties, including existing houses, townhouses, apartments, house and land packages, and off-the-plan properties.
Guarantor Home Loans
A Guarantor Home Loan allows family members, or sometimes close friends, to ‘guarantee’ your loan. This means they agree to be responsible for the loan repayments if you’re unable to make them. Typically, the guarantor offers equity from their own property as security for part or all of your mortgage. Essentially, this equity acts as additional collateral, providing extra security for the lender. If you default on the loan and your guarantor is also unable to meet the repayments, the bank could take possession of the guarantor’s equity.
One of the key benefits of having a guarantor is the potential to avoid paying Lenders Mortgage Insurance (LMI). Depending on the lender, LMI can be paid upfront as a one-off fee or added to your loan repayments. Additionally, a guarantor can help you secure a home loan if you haven’t saved enough for a 20% deposit, reassuring the bank that the mortgage will be repaid even if unforeseen circumstances arise.
However, there are significant risks and drawbacks for the guarantor. They are ultimately liable to cover mortgage repayments and any associated fees if you’re unable to do so. Potential guarantors should carefully consider this commitment, as it could put their savings or property at risk and potentially delay their retirement plans.
Low-Deposit Lender Home Loans
First-Home Buyers and those who need more funds for a 20% deposit can find it challenging to enter the property market. Opting for a Low-Deposit Home Loan can make it easier to buy a home without needing a large initial sum. Low Deposit Home Loans have loan-to-value ratios (LVRs) of 90-95%, meaning you borrow 90-95% of the property’s value and pay a deposit of 5-10%.
The benefits of a Low-Deposit Home Loan include making it more realistic and achievable to save up to $25,000 rather than $100,000, enabling you to get on the property ladder sooner. No substantial savings are needed, and if property prices increase, you’re in a better position because even with a small deposit, you’re growing your equity and wealth via the property’s capital gain in value.
However, Low-Deposit Home Loans do come with risks, such as potentially higher interest rates because you’re borrowing more money, leading to a higher overall mortgage amount. Additionally, these loans often come with higher rates and the extra cost of Lenders Mortgage Insurance (LMI), which can amount to several thousand dollars. Furthermore, taking out a Low-Deposit Home Loan may impact your ability to invest in the property market in the future, as higher rates mean higher repayments, which can affect your ability to generate enough savings to attain another loan.
Frequently asked questions
What’s Involved in Obtaining a Commercial Loan Through Intuitive Finance?
Initial Meeting
A 1-hour session to establish your financial and lifestyle goals, discuss the fact-finding document, and agree on a timeline for its return.
Fact Finding Submission
We will submit the completed fact-finding document.
Strategy Submission
Within 5 days of receiving the completed fact-finding, a written strategy is submitted to you.
Document Lodgement
Within 2 days of agreeing to proceed, documents are lodged with the institution.
Conditional Approval
Expect conditional approval within 1 to 3 days of lodgement.
Unconditional Approval
Expect unconditional (full) approval within 2 to 4 days after conditional approval.
Loan Documents Arrival
Expect loan documents to arrive within 2 to 5 days after unconditional approval.
Loan Settlement
Expect loan settlement within 3 to 5 days after submitting the signed loan documents.
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