Options for First Home Buyers With Minimal Deposit

Buying a house is a new and exciting experience for first home buyers; however, saving up that big deposit and getting a loan can be a cumbersome, time-consuming task. Traditionally, banks require a 20% deposit based on the cost of the home to consider lending money to a home buyer. And often, first-time home buyers do not have that large sum laying around.

Soon-to-be homeowners may also be asked to take out Lenders Mortgage Insurance (LMI) to ensure the bank is covered if the buyer defaults on their loan. LMI can be costly, as it is based on the loan-to-value ratio.

While this may sound difficult, there are some options for buyers that can ease the expenses of that first home purchase.

LMI Options

$1 LMI. Currently, certain banks are allowing first-time home buyers to borrow up to 85% of the home value. This allows the buyer to reduce their deposit to only 15% of the buying price and to take out their LMI for only $1. There are certain criteria that must be met, such as the home buyer living in the home and must have a principal and interest repayment plan, not just an interest-only plan. Once the criteria are met, the home buyer will be able to save thousands in LMI expenses.

LMI Waiver. Banks are waiving LMI for some professionals that are known to be low-risk borrowers, including medical professionals and accountants. The LMI is waived for loan-to-value ratios up to 90 percent. This means a first home buyer only needs a deposit of 10% when looking to buy their home. Qualifications for this are minimal — the buyer only needs to be able to prove they can pay back the loan. This option can again save you tens of thousands of dollars in LMI fees.

Family Guarantee

Some lenders give first-time home buyers the opportunity to have a guarantor on their loan. This allows the buyer to borrow up to 100% of the property value and avoid paying the LMI, in many cases. Sometimes this option even allows the buyer to include the fees in the loan, leaving them with very little upfront expenses. The guarantor is often a parent or other close family member of the buyer. They must have property with available equity and good credit for the bank to consider them as the guarantor. The home buyer still makes the mortgage payment on the home, but if the loan is defaulted for any reason, the bank’s risk is minimized by having the guarantor on the loan.

First Home Loan Deposit Scheme

Under the First Home Loan Deposit Scheme (FHLDS), first home buyers can get a loan for up to 95% of the loan-to-value ratio from certain lenders. Buyers also don’t have to pay for Lender’s Mortgage Insurance under the new FHLDS. With only a 5% deposit and no LMI, potential buyers save tens of thousands of dollars on upfront housing costs. Price caps have been raised on newly built dwellings and housing and land packages in the scheme throughout most of the country. These schemes are only available to first-time buyers.

Home buying, especially for the first time, is an exciting time in life, but with it comes considerable upfront costs. These expenses often put a limit on the house that an aspiring homeowner can purchase, and sometimes, the neighbourhood that they can live in. The above options help make the adventure a little more affordable, allowing more flexibility and a note of comfort for their first purchase.

As this is just a snapshot, we understand if you would like to discuss these issues further. Please get in contact with one of our Tax Specialists today on (03) 9835 8200.
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Greenfish Marketing
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