How to enter the property market with a small deposit
With the steady rise in house prices we’ve seen over the past decades, many new home buyers and investors are wondering how they can get their foot on the ladder.
Fortunately, there are still ways you can purchase a property without needing a large deposit.
Here are four ways to get started purchasing a property earlier than you might have thought.
Lenders Mortgage Insurance
Lenders Mortgage Insurance (LMI) is a one-off upfront premium that’s added to your home loan balance. It is put in place to protect the lender.
LMI allows a borrower to take out a mortgage on a property with a deposit less than 20 per cent. The cost of LMI will vary depending on the amount of money you’re borrowing, as well as your LVR.
Home guarantee scheme
The home guarantee scheme is a federal government program to help first home buyers enter the property market.
The scheme works by requiring a borrower to put down as little as a 5 per cent deposit while the Government will act as the guarantor for the remaining 15 per cent. The goal of this is to help get the borrower up to the lender’s 20 per cent threshold. There are also other schemes that fall under this program that allow single parents to borrow with as little as a 2 per cent deposit.
Applications are limited to first home buyers that meet certain income and eligibility criteria, and there are certain price caps on homes.
A guarantor loan works by having another person, typically a close family member, provide equity or security in their property to fund a portion of the deposit for your home.
This is normally only available to first home buyers and it’s important to understand that a borrower is still required to manage the repayments and meet serviceability requirements based on their own income.
Purchasing with someone else
If you can’t qualify for a loan on your own, it might be possible to buy a home with the help of someone else.
If one person has a good income and strong serviceability while the other has a cash deposit saved, you might be able to partner up.
This type of arrangement will depend a lot on the goals of the individuals and if you can put a plan in place. This strategy requires knowing how you’re going to manage the property and any ongoing expenses, as well as what you’re going to do with it if one party needs to sell.