No deposit loans
The days of borrowing 100% of the purchase price without any proof of savings are gone. Unfortunately, due to the global financial crisis, there are no lenders able to fund these types of loans.
However, you can still get approved for a 100% loan if you get a little creative or if you have help from your parents!
What are the lending criteria for a no deposit loan?
Lenders apply very stringent credit guidelines when assessing no deposit home loan applications.
- Credit history: You must have a perfect credit history with Veda Advantage. No Australian lenders will make an exception to this policy if LMI approval is required.
- Repayment history: You must be paying all of your current debts such as credit cards, personal loans and rent on time.
- Location restrictions: You must be buying in a major town, capital city or regional centre. One of our lenders is willing to consider anywhere in Australia, however, most other lenders are very strict about the location that you are buying in.
- Property type: You must be buying a standard type of property such as a house, townhouse, unit or vacant land. As a general rule, unusual or unique properties are not acceptable. We have been able to lend for duplexes, inner-city apartments, studios, bedsitters and even company title units in the past for customers of ours that have a good income. If you are not sure then call us and we will let you know.
- Stable employment: Your employment situation must be stable and ongoing.
- Income: Your income must be high enough that you can easily service the loan. You cannot borrow to your limit with a high LVR mortgage.
- Professionals: such as accountants, lawyers, doctors, vets, nurses, government employees and teachers are highly sought after by lenders because they are well known to be a lower risk than people in other professions. You don’t need to be a professional to get approved, but it helps!
Do I need any savings for a no deposit home loan?
In all other situations, you would need savings to get approval for a home loan but there are ways around this if you have a guarantor!
- First Home Buyers: As a general rule, if you are a first home buyer your First Home Owners Grant (FHOG) should cover most, if not all, of the costs associated with buying a property.
- Second Home Buyers: Due to the costs of stamp duty and conveyancing, non-first home buyers usually need to have a minimum of 5% of the purchase price available unless they have a guarantor. A deposit sourced from a gift from your family or from selling an asset is acceptable for some banks. It is quite common for second home buyers with some savings to use the 95% plus credit card option mentioned above to cover the cost of stamp duty.
- Investors: Because investors do not receive the Government’s grant or stamp duty exemptions, they will need a minimum of 9% of the purchase price to be able to complete the purchase, unless they have a guarantor. This is 5% to cover the deposit and a minimum of 4% to cover the stamp duty and purchasing costs.
- Construction: You can build a house without any savings using a no deposit construction loan if you are a first home buyer and have a guarantor. Due to the nature of construction, we recommend that you have a small buffer of around $5,000 just in case you go over budget.
Saving a deposit or borrowing with no deposit?
That depends on the property market you are in.
If you are in a market that is increasing in value, then more often than not it is far cheaper to borrow 100% using a guarantor or borrow 95% and pay LMI than to wait and save a deposit. This is because the lost capital gains ends up costing you tens of thousands of dollars.
Most people find it difficult to save a deposit anyway and, after 6 months, are in the same situation as they were before. For this reason, most people prefer to borrow 100% than to save.
You can use our calculator to decide if you should buy now or save a larger deposit.
Don’t forget that Australia is not a single property market! For example, Brisbane may be increasing in value while Sydney and Melbourne are steady.
Talk to local real estate agents to find out what is happening near you.
If you are in an area that is stable or is declining in value, then it may be better to save a 5% deposit and apply for a 95% loan if you would prefer not to use a guarantee.
Contact Solution Home Loans today, speak to one of our Mortgage Broker, for a no-obligation discussion about your finance needs.