Roughly 10 years ago, and when first time home buyers and investors in Australia began what has now become a flourishing property market, it was often possible to access loans with a value of 100% LVR. After the GFC, however, this was one of the first products to be removed from the market.1
These days however, much has changed and the majority of lenders are a lot stricter when it comes to lending money. Not only will they typically lend less – there are other restrictions that can detract from the borrowers potential to receive financial support altogether.
So, is it still possible to receive a loan with a high LVR if you don’t have a comfortable deposit to pay as a contribution? Well, that really does depend on the amount that you’d like to borrow – and the lender that you’re hoping to borrow from.
In Australia, there are several different finance lenders. The four major banks (often referred as the Big Four) as well as other second tier lenders. Lenders may be willing to provide up to 95% of the cost of your home, depending on their lending policies. It is important to note that loans that are between 80% to 95% of the properties total value, will incur an additional fee in the form of LMI (or lenders mortgage insurance). LMI is a form of insurance that the lender charges the borrower to protect the lender from financial loss if the borrower cannot afford to pay their mortgage repayments.
With that in mind, what’s the verdict on how much you’d need to use as a deposit on your home?
If you find a bank that is willing to extend 95% of the total cost of the property, plus the 2% additional value of the LMI, then what this means is that you may be able to borrow 97% as a loan and then cater to the extra expenses of the insurance. Some lenders though, will only allow for 95% including LMI. It is important to understand the overall cost to purchase a home will be more than the property purchase price and factor this into the. The cost of buying a property includes LMI, stamp duty, transfer duties, bank charges and solicitor fees. When considering the amount that you need to borrow, consider contacting a mortgage broker to help you to understand these costs and the total funds required to purchase your home.
It really doesn’t matter if you’re looking to buy your first home, or an investment property – if you want to ensure that you minimise the amount that is needed for a deposit, then here are a few pieces of advice to help you along the way:
Manage Your Credit History
If you want to stand the highest chance of enjoying the lowest deposit amount, then the clearer your credit report, the better.
Make Sure That You Have Consistent Income
Whether it’s from your own employment or a companies’ payments to you – the more consistent your income, the better. In most cases for those who are PAYG, a minimum period of income will be between six and 12 months. For those who are self-employed, two financial years of tax returns will be required. Different lenders require different documents to support your application, so know what you will need to supply beforehand
Solidify Your Income
If you are on a low income, then don’t aim too high when it comes to borrowing. Most lenders will calculate your expenses and your commitments and then compare them with your income to see if you can afford to repay what you are requesting.
A lender won’t just want to see that you have a lump sum available to cover the cost of your loan – they will also want to see that you’ve been building upon it consistently. Some lenders may use a rental history as a form of savings history.
Minimal, if any Debts
If you have personal loans and credit cards then you may already be at a disadvantage. Lenders will calculate whether a borrower has more than 7% of the value of their loan in repayments and unsecured debts and if they do, the chances are that they won’t be approved for their mortgage.
As daunting as all of the above might sound, the reality is that interest rates are now at an all-time low – in fact they haven’t been lower for more than half of a century. Now is a very good time to buy and an ideal place to start is by comparing these home loan rates and pursuing an application with the bank that proposes the fairest terms.
Credit Representative Number 496186 is authorised under Australian Credit License Number 389328 Disclaimer -This page/article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.
1 MPA May 2011 ‘Buyers clamour for 100% loans’ https://issuu.com/keymedia/docs/mpa11-5