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90% LVR Home Loans

Don’t want to wait any longer to buy your own property? You might be able to qualify for a 90% home loan – here’s how

Find out everything about 90% LVR Home Loan options

Minimum deposits are there to protect both lenders and borrowers, but the fact is, in the current climate, saving a big house deposit can be far easier to plan than to achieve. Australia’s housing market moves pretty quickly, and prices seem to be on the up most of the time. As a result, not all home buyers feel they can afford to wait too long when it comes to applying for a mortgage.

90% LVR home loans mean that not all borrowers need to save a 20% deposit when buying a house. There are options for buyers that want to get on the property ladder a little faster, don’t have a huge deposit, or think they can’t save quickly enough to own their own place. In this guide, we’ll show you how you can apply for a 90% LVR home loan, how to prepare, what it costs, and how the process works. Not only that, but you can use Savvy’s website to compare 90% mortgage deals, examine fees and charges, and even calculate repayments too.

How does a 90% home loan work?

90% LVR home loans work in a slightly different way to other mortgages. Mostly, you’ll need to make sure you prepare well for your application. It’s not so much that 90% home loans are harder to get; it’s just that lenders pay closer attention to your finances when you use a smaller deposit. The good news is that if you do your research and get yourself ready before you apply, you should be successful.

Let’s start by addressing the term LVR. This stands for Loan to Value Ratio, and it’s partly how lenders view risk when they assess mortgage applications. Risk is important when you apply for any home loan. It’s estimated using your borrowing, credit and work history, and things like your income and spending – plus your proposed LVR. Those things don’t just affect the interest rate you get offered; they also dictate whether you get a yes or a no.

So, your loan to value ratio is just a measure of how much you borrow minus how much of a down payment you use, expressed as a percentage of the total loan amount. For instance, a $500,000 home loan with a deposit of $100,000 results in an LVR of 80%. The key thing here is that anything above 80% is where things get non-standard. An example of a 90% home loan would be if you borrowed that same $500,000 but used a $50,000 – or 10% – deposit instead.

A standard home loan application will arrive with the lender alongside at least a 20% deposit, so the main and most obvious difference in your application is you’ll be using 10%. Apart from that, there are just two main distinctions:

  • Lenders mortgage insurance: a one-off insurance premium you need to pay when you use a smaller deposit, also known as LMI. It covers the lender for the shortfall if there’s a worst-case scenario outcome with your loan – like if you default.
 
  • More lender scrutiny: this happens because you’re borrowing more, depositing less, and that just makes things a little riskier than a standard mortgage. It’s not an issue as long as you get your ducks in a row before you apply, and we’ll talk about how to do that later.

How much do 90% LVR home loans cost?

To understand how 90% LVR loans cost more than, let’s say, an 80% LVR mortgage, you need to consider a few factors. First, it’s reasonable to assume that because providing a smaller deposit poses more risk to the lender, you’ll probably pay a slightly higher interest rate – and that affects you during the course of your loan and repayments.

Secondly, there’s the general cost of borrowing. That isn’t specific to 90% home loans. How much borrowing costs and why will remain the same whether you’ve got a car loan for $10,000, a mortgage for your home, or an appliance bought from the store using credit. Basically, the more you borrow and the longer you take to repay, the more the interest mounts up and the more you need to pay back.

When you use a smaller deposit, your home loan will inevitably cost more to repay in total. That’s because you’re borrowing a more significant amount. You can counter that by choosing a 25-year home loan instead of a 30-year mortgage, for instance. However, many borrowers feel that with house prices rising so rapidly, the benefits associated with borrowing more on a 90% home loan outstrip the cost of waiting anyway – and then some. Your situation will be unique, so it’s essential to weigh up the pros and cons of 90% LVR loans before you commit.

The third cost factor with 90% LVR home loans comes down to lenders mortgage insurance – if you need to use that. It’s a bit like interest in that the higher your LVR and the more you borrow, the more LMI costs too. LMI gets based on a percentage of your loan and works like this, although all insurers advertise slightly different rates: 

Home Value & LVR Up to $300,000 $300,001 - $500,000 $500,001 – 750,000
85%
0.8% or loan amount
1.00% of loan amount
1.2% of loan amount
90%
2.6% of loan amount
2.8% of loan amount
3.2% of loan amount

You may also have to pay some fees when you take out a 90% home loan. Lenders differ, but they can vary between:

  • Application fee (a one-off charge to set up your home loan)
  • Valuation fee (to cover the cost of valuing your property)
  • Settlement fee (payable when the lender releases your home loan funds)
  • Ongoing fee (an annual or monthly account fee)

How do I compare different 90% home loans and fees?

Here in Australia, we’re lucky enough to have a requirement for lenders to advertise mortgage rates two ways. You’ll always see the interest rate and a comparison rate displayed in Savvy’s home lender tables. The comparison rate is standard across all products and includes any extra fees associated with each one, representing them as a percentage. It’s better to look at the comparison rate than the interest rate when you shop around.

When you’re buying a home with a 10% deposit, anything you can do to reduce your borrowing costs is important. Fees for different home loans vary – sometimes a lot. Use comparison rates to ensure a lower interest rate isn’t masking high setup and account fees. If making extra repayments and future mortgage refinance are important to your plans, check for any fees for that associated with different home loans. Some lenders charge hefty break fees when you want to refinance.

In addition to fees, interest rates, and total borrowing costs, different mortgages come with various features that are designed to meet the plans of specific borrowers:

  • If you plan to renovate a property, you could use a line of credit home loan. That allows you to dip back into the equity you build up as you repay your mortgage. Many buyers use it to complete work on or modernise their home or an investment property.
  • If you’re lucky enough to have some savings stashed away, you might find it makes sound financial sense to use an offset mortgage. That’s a home loan that comes with a connected bank account. You use the account much like any other current account but any funds you have deposited go towards reducing your mortgage repayments. Even though that isn’t accounted for in the comparison rate, such a feature can dramatically reduce how much a mortgage costs.

Top tips on how to optimise your 90% LVR home loan application

When you apply for 90% LVR home loans, lenders will scrutinise your situation carefully, so be prepared beforehand.

Get all the documents you need ready

When applying for 90% LVR home loans, you’ll need to provide an accurate snapshot and history of your finances to your chosen lender. You do that by supplying some key documents:

  • If you’re employed, the lender might ask for some payslips
  • If you’re self-employed, the lender may ask for a couple of years’ worth of tax returns
  • At least three months’ worth of bank statements
  • The contract of sale for your new home
  • Details of any guarantor and their contribution
  • Statements for any existing loans and credit cards

Show the lender you’re good with money

As previously discussed, lenders love to see genuine savings because that demonstrates you can plan ahead and manage your money. Shares and paid-for assets will go just as far with some lenders, but not all. If you can, start stashing some cash in a savings account the second you make the decision to apply for a 90% home loan.

Make sure your credit history is clean

Not everyone realises that credit reports sometimes contain errors. That’s because credit providers occasionally make mistakes or forget to record payments. You can check your information once a year for free, but it’s worth paying the fee if you need to before a major application like a 90% home loan. Scan for mistakes, and if you spot any, apply to have them corrected before you apply.

Cut back on credit and spending before you apply

Whenever you prepare for a finance application, it’s a great idea to cut back on borrowing and unnecessary spending for a good six months first. That’s no different with 90% LVR home loans. The lender will use your bank statements and credit report to check for existing financial commitments and how much you spend versus your income.

Don’t switch jobs too often

If you’re employed rather than self-employed, lenders look to see how long you’ve done the same job and how long you’ve been with your current employer. It’s not the deciding factor in whether you qualify but having a stable employment history can see you get offered a slightly better interest rate, so it’s worth waiting until after you apply for 90% LVR home loans before you switch jobs or careers.

Ensure you qualify twice

It’s good to be aware that if you need to use LMI, you not only need to qualify with the lender, but you also have to meet insurer requirements too. Both have an interest in only extending their services to someone who can comfortably afford to repay their mortgage. Enter into a home loan application well prepared, armed with all the relevant facts, and with the correct paperwork, and you’ll maximise your chances of success.

Got more questions on 90% LVR home loans?

Find out everything you need to know about applying and qualifying for home loans in Savvy’s handy FAQs section.

Can I borrow the cost of LMI with a 90% home loan?

You can ‘capitalise’ the cost of your LMI. That basically means you add it to the home loan. It’s important to be aware that can affect just how much LMI you pay. When you add to the borrowed amount, it changes your LVR, so that affects the percentage of LMI.

What’s a risk fee?

Some lenders make their own provisions for a shortfall in your deposit instead of specifying you need LMI. To all intents and purposes, a risk fee serves the same function as LMI in protecting the lender, and the cost to you should be similar.

Can I still get a 90% LVR home loan with a bad credit history?

Whether or not you can get a bad credit mortgage is going to come down very much to your specific situation and the nature of the problems you had in the past. It’ll also depend a lot on which lender you choose to borrow with. It’s always a good idea to compare as many mortgage lenders as possible, even if you haven’t had issues with credit in the past.

Can a guarantor on my 90% LVR home loan help me avoid paying LMI?

If you want to avoid LMI or just pay a 20% deposit to reduce your borrowing costs, and you’re lucky enough to have a supportive family member, you could consider a [family pledge home loan.] That’s a specialist mortgage product that allows a parent or sibling to guarantee your deposit or part of it by using their property or savings.

Can I use a cash gift or an inheritance for a home loan deposit?

Many homeowners buy their first place after inheriting money from a relative or friend, and there’s nothing wrong with using an inheritance as a down payment on a home. You could also be fortunate enough to have a helpful relative who’ll gift you the money for a deposit, and that’s fine too.

Can I avoid paying LMI without a guarantor?

The First Home Owners Grant (FHOG) is a state-based scheme designed for first-time homebuyers only where the government will do the mortgage insurer’s job and take on the lender risks associated with your deposit. FHOG places are limited each year, and you’ll need to meet strict criteria.

What are ‘genuine savings,’ and are they necessary?

Genuine savings is where you demonstrate to a lender that you’ve been saving a significant amount of money for a reasonable period, usually using your bank records. However, some lenders will let you demonstrate you’re financially responsible in other ways. You could sell a car, boat, company shares or other assets to raise money for a home loan deposit. Shares and assets are a bit like having savings in some lenders’ eyes. That’s because buying shares is a form of investment or saving, and paying for cars and other assets requires financial discipline, too.

How does negative equity affect me?

Equity is basically how much of your home you already own. At the start of 90% LVR home loans, that’s going to be 10% of its value. Negative equity happens if the value of your property falls over time instead of rising. That can result in you owing more than it’s worth. Negative equity is a risk all homeowners take, but it increases when you use a smaller deposit – because the amount the value needs to fall to reach negative territory lessens. With most homes, your equity rises as you make repayments and time passes.