How To Buy a House with No Deposit

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You don’t have savings! No problem!

There are a numerous options to buy a house with no and low deposits. Most people think if you don’t have any savings there is no hope, but there are realistic options.

Can I have a Deposit come From Anywhere?

Most lending for low deposit home loans are based on a minimum of 5% deposit and the funds don’t need to be derived from your income. So where does the deposit come from?

The 5% deposit can come from anywhere and can be made up of any of the following-:

• Sale of an asset (car, bike, garage sale)

• Non refundable gift from a friend or family member

• First home owners grant

• Personal loan

• Tax refund cheque

You may have been told that you have to have the full 5% sitting in a bank account for a minimum of 3 months, this is not the case with certain banks and products. Lenders will allow the funds to be in your bank account for 1-day and you can use them toward the deposit for your new home.

Will I have to pay a higher interest rate?

Interest rates for these loans (called non genuine savings loans) have comparative rates to general lending products with most lenders. The rate might not be the very cheapest on the market, but they certainly should be in line with the general market rates.

Will I have to pay Lenders Mortgage Insurance (LMI)?

Yes. Loans over 80% will incur Lenders Mortgage Insurance or what some lenders call ‘Risk Fee’. This insurance fee is a fee paid by you, but it is not personal insurance, it protects the bank against the risk of higher loan to value ratio loans. The fee can be added onto the loan amount in most cases so you don’t have to pay the fee in cash.

But what if I don’t have any savings at all?

No Deposit Guarantor Loan

If you have a Family member that is happy to be Guarantor, then you don’t need any savings at all and you can also borrow up to 110% of the purchase price to cover legal and application costs as well as moving costs and furniture for when you move in.

The loan will be a single loan in your name, but the deposit amount of 20% is secured against the Guarantor’s property. The people that suit the Guarantor model are; Grandparents, Parents, siblings, sons or daughters of the applicants.

This type of loan eliminates the need for LMI and will save you money. These types of loans have slightly different policy with different banks and depending on the Guarantor’s situation (working or not working and their asset and liability position) different banks will accept them as a Guarantor. There are banks where the Guarantor can be retired and still be able to be a Guarantor.

What is the benefit of using a Guarantor?

• No LMI

• Borrow up to 110%

• Gain most competitive market rates

Can the Guarantor be Released at any Time?

Generally, banks will consider the release of the second property once the loan ratio is at a minimum of 90% of the property value. This would be achieved if the loan has been repaid to 90% or if the property had increased in value as determined by a bank valuation. If the property is released at 90%, then the bank would charge Mortgage Insurance as the loan is over 80%, but could potentially add this onto the loan amount. The bank would not generally release the Guarantor if repayments were in arrears or if other liabilities that were held by the same bank were not being paid on time.

What if I have some savings but not enough to cover stamp duty and other costs?

If you have a 5% deposit and you have saved this from your own income, then there is a handy product that will provide additional $20,000 cash at settlement on top of the 95% loan to cover the stamp duty and lending costs.

The additional $20,000 is a secured visa card and the rate is at a home loan rate for the life of the loan.

If you would like to discuss your low deposit options further, you can call our Freecall number on 1800 755 976 or complete our home loan form and in the details section mention your are interested in a no deposit home loan and we’ll do the rest.