No Deposit home loans, these days, come in the form of Low Deposit Home Loans, First Home Deposit Schemes and through Guarantor Home Loans, this is because most lenders generally don’t offer true ‘no deposit’ home loans. However, many lenders offer what could be the next best thing — 5% deposit home loans, which are better known as Low Deposit Home Loans.
The government, as of the 21st of March 2021, began to offer a First Home Loan Deposit Scheme, which is much like a Low Deposit Home Loans but they are for First Home buyers who will make the home their Principal Place of Residence.
Guarantor Loans are also offered by lenders as they are a safe option for the lender where if the client paying off the loan cannot make a payment, the guarantor will pay that payment, or payments.
Low Deposit Home Loans have a loan to value ratios (LVRs) of 90-95%, meaning you borrow 90-95% of the property’s value, and you pay a deposit of 5-10%.
The benefits of a Low Deposit Home Loan include; that it’s far more realistic and achievable to save up $25,000 than $100,000, so low deposit loans enable you to get on the property ladder sooner, no savings are needed and if prices increase this puts you in a better position, because even with a small deposit, you’re actually growing your equity and wealth via the property’s capital gain in value.
Low Deposit Home Loans do come with risks such as; you may pay more interest with a low deposit loan, simply because you’re borrowing more money, buying a property sooner means borrowing more and having a higher overall mortgage amount and that Low Deposit Home Loans often come with higher rates, and with the extra cost of lenders mortgage insurance (LMI), which can amount to several thousands of dollars.
Further, taking out a Low Deposit Home Loan may impact your ability to invest in the property market in the future as you will incur higher rates which means higher repayments. This can affect your ability to generate enough savings to attain another loan.
The First Home Loan Deposit Scheme allows first home buyers with deposits as low as 5% to get a home loan without paying Lenders Mortgage Insurance (LMI) fees. Essentially, the government will act as the mortgage insurer guaranteeing home loans for eligible first home buyers with a minimum deposit of 5% of the property value. Based on the maximum regional price cap under the Scheme, first home buyers can save anywhere between $10,000 and $30,000 in LMI fees.
The benefits of the First Home Loan Deposit Scheme are that the scheme allows you to get a home loan sooner because you only have to save a smaller deposit and that with the First Home Loan Deposit Scheme you save time, because you can save a 5% deposit in a quarter of the time it would take to save 20%. You also avoid the LMI premiums, which can cost thousands of dollars. Rising property prices could make the scheme more appealing as if your property rises in value while you’re paying it off you’re gaining equity.
There is a downside to the First Home Loan Deposit Scheme and that is that saving a smaller deposit and borrowing more money means paying more interest over time, which, like a Low Deposit Home Loan, can impact your ability to further establish yourself in the property market.
A Guarantor Home Loan allows family members or, in some cases, someone else who is close to you, to ‘guarantee’ a loan. This means they will be responsible for paying back the loan if you can’t. A guarantor usually has to offer equity (such as a percentage of their own home) as security for part or all of your mortgage. For a Guarantor Home Loan you would borrow an amount from a bank and repay it, but the guarantor’s equity essentially acts as additional collateral should something go wrong, which means the bank could take possession of it if your guarantor also can’t meet the repayments.
One of the main benefits of having a guarantor on your home loan is that it may help you avoid paying Lenders Mortgage Insurance (LMI). It can be paid upfront as a one-off or added to your loan repayments, depending on the lender. A guarantor could also help you secure funding from a bank if you don’t have enough saved for a 20% deposit, and can help reassure the bank that mortgage repayments will be covered even if something unexpected occurs and you can’t pay.
The main risks and drawbacks associated with a Guarantor Home Loan are for the guarantor, who is ultimately liable to cover mortgage repayments and fees if the borrower is unable to. Any potential guarantors should carefully consider the decision to go guarantor, as it could put their hard-earned savings or potentially their home at risk and delay retirement plans.
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Most lenders do not offer No Deposit Home Loans, but they do offer loans such as Low Deposit Home Loans, Guarantor Home Loans and First Home Deposit Schemes. These three alternatives to No Deposit Home Loans are safer options for lenders to deal with whilst still giving the person attaining the loan the ability save smaller deposits such as 5-10%.
Generally, for these type of loans and schemes, standard fixed, variable and basic loan rates will apply.
Future investing requires two things, these being equity and income. Everyone’s situation is different and we always analyse each client’s case on a different basis, looking to assist them in the best possible way.
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