You want to buy that perfect house you have been dreaming of, but you do not have the money? For most of us, getting a guarantee from someone in the family is an out-of-this-world idea, so what are the options left?
If you are a doctor, an engineer, an accountant or have any other well-paid profession, there are some lenders that will offer you a no deposit home loan. If this is not your case, then your only option would be a 95% home loan. This means you will still need to save 5% of the property value. The other option, if its available, is that you use existing equity from a property and cross-securitise the loan.
Advantages of a no deposit home loan
The advantages if its possible is that you do not need to use cash that you may have placed elsewhere or go through the years of saving which is quite hard when you are paying rent.
Disadvantages of a high LVR home loan
As no loan has only advantages, here are the drawbacks of this type of loan. Although you will be able to borrow 95% or even 97% of your house purchase price, you will have to pay the LMI (Lenders Mortgage Insurance) to cover the lender's risk. LMI can become quite costly and be around $8,349 for a property worth $316,000, for example. In case of default, LMI covers only your financial institution; it doesn’t also cover you.
LIke with most lending the key to an apporval is being to prove that you have strong employment and a reliable income.
If you are thinking to choose a home loan with no or minimal deposit, compare all the advantages and disadvantages and also talk to a specialist who can give you some advice on what would be the best option for you, according to your needs.