
What is a no deposit home loan?
No deposit home loans allow borrowers to borrowers up to 105% of the purchase price of a property without requiring a deposit to cover buying the property as well as additional cost such as stamp duty and legal fees.. Not all lenders offer these home loans and the ones that due have a strict criteria for approving no deposit home loans.
How do i get approved for a no deposit home loan?
Although lender policies vary, most loan providers will have a strict qualification and approval process. Due to the National Consumer Credit Protection Act and the responsible lending provisions governing home loan providers, most lenders will only consider clients that;
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Have an excellent credit rating.
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Are buying a standard property in a desired location.
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Have sufficient stable employment income to meet the regular repayments
You can improve your chances of getting approved for a no deposit home loan if:
You have a guarantor who agrees to be legally liable for repayments if the borrower defaults.
Usually, a guarantor is a family member such as a parent who are helping their children enter the property market. This type of arrangement should not be considered easily as there are significant risks to the guarantor should the borrower default, such as being responsible for regular loan repayments, being responsible for any shortfall if the property is sold, and losing their own property which guaranteed the borrowers purchase.
The borrower qualifies for a First Home Owners Grant
Australian state governments offer one off grants to first home buyers. You need to meet the criteria and should make your enquiries prior to legally purchasing a property if you need this grant to contribute to your home loan.
Use the equity that they have in another property.
If you own another property and have substantial equity you can use the equity as an cash injection or guarantee for another property purchase. Generally if you need to use more than 80% of the equity of your current property for a future purchase, you will be subject to stricter lending policies and lenders mortgage insurance (LMI)
What Are The Advantages and Disadvantages of No Deposit Home Loans?
No deposit home loan advantages
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No deposit home loans can help buyers enter the property market earlier.
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They can help investors purchase further properties by using equity in currently owned properties.
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You may save the cost of lenders mortgage insurance (LMI) if you have a guarantor.
No deposit home loan disadvantages
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Stricter approval process and required criteria such as a guarantor.
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Higher interest rate due to the higher risk to the lender.
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Property location restrictions.
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You can potentially owe more than the property is worth if there is a market downturn.
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Generally only available to applicants with strong employment history and good future employment prospects.
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If you are self employed it is unlikely that you will qualify for this type of home loan.
Should i consider a no deposit home loans?
There is a higher level of risk to both borrower and lender with a no deposit home loan and borrowers should consider the disadvantages as well as the advantages when deciding if a no deposit home loan is the right home loan product for them.
What are my options if i do not qualify for a no deposit home loan?
There are options to a no deposit home loan where a standard deposit of 20% isn’t required. They include:
Low deposit home loans
If you can prove your ability to save a deposit it demonstrates to the lender that you can budget efficiently for future repayments. Low deposit home loans may still require a guarantor and lenders mortgage insurance (LMI) however you will at least start your home loan with some equity in the property.
5% deposit home loans
Similar to low deposit home loans, if you have 5% deposit plus the funds to cover additional costs such as stamp duty and legal fees there are a larger number of home loan lenders prepared to consider your home loan application.
Self managed super fund home loans
If you have a self managed super fund, you can use some of these funds to purchase a property. These funds are available for investment properties and not owner occupied homes. If you are considering this type of home loan you should seek professional advise before making any decision.
What's the Yellow Line?
No deposit home loans pose a higher risk to both home loan lenders and borrower and buying a home is likely to be the largest financial decision you will make.
There are a vast range of products and banks are extremely competitive.
It is best to seek professional financial advise to ensure you obtain the most appropriate home loan product for your needs.
Yellow loans has a vast range of lenders with a range of products to achieve the best results on obtaining the best home loan deal for you. You can contact us here and we can get your future looking bright.