Traditionally people would need to pay 10% – 15% of a property’s value to secure a home loan. With median dwelling prices in Australia being at about $550,000 means you would need between $55,000 and $82,500 to secure a deposit on a house.
But did you know that you can get a deposit for as little as 3% of a property’s value? This is called a 97% LVR (Loan to Value Ratio) home loan and is available through a range of different lenders Australia wide.
What does a 97% LVR loan get me?
A 97% LVR home loan can save you a large amount of money on a deposit for a home. At the median Australian dwelling price of $550,000 you would be able to get a deposit of $16,500, saving you between $38,500 and $66,000 from the LVR levels of 90% and 85% stated earlier.
How can I get a 97% LVR home loan?
To receive a 97% LVR home loan, you will need to prove your ability to be able to make the repayments on your home loan as they come. This is done through a variety of different ways. If all of these different aspects of your financial history are favourable, you will likely be successful in applying for a 97% LVR home loan.
- You must have a strong enough level of income enough to cover your new home loan repayments and existing costs, such as living costs and any other existing debts.
- You must have a strong employment history and working in a stable job for at least 6 months prior to your application should be adequate.
- You must have a good credit history ensuring all your bills are paid on time and to the full amount.
- Basic levels of debt are okay such as limited credit card debt. However, the lesser the better.
- You will need genuine savings. Not all lenders have a genuine savings requirement but most will.
What’s the catch?
While a 97% LVR home loan could mean considerable savings on a deposit, there are some draw backs to this type of loan.
For example, interest rate levels will likely be slightly higher than normal because of the higher loan amount and also the higher risk associated with this level of LVR. This will translate to a larger total repayment than you would see on a home loan at 80% or even 90% LVR.
Also, when paying a deposit that is over the 80% LVR mark, borrowers will usually have to pay something called Lender’s Mortgage Insurance (LMI). LMI is a payment that can be made either upfront or be placed on top of your home loan. It exists to cover lenders in the event that you are no longer able to make your home loan repayments.
How much can LMI cost me with a 97% LVR home loan?
The rate of LMI will rise with your level of LVR as well as with the price of the property you are looking to purchase. Take for example these LMI rates at different LVR levels and property prices.
|Property Price||97% LVR LMI payment||85% LVR LMI payment|
Your home loan options
Making your first big step towards buying a home? It's crucial to be across your mortgage options as a first homebuyer.
Opting for a variable interest rate on your home loan means it'll fluctuate as the market moves throughout your repayment term.
On the other hand, fixing your rate locks it in for a pre-defined period. This can bring with it greater certainty around your budget.
It's important not to set and forget when it comes to your home loan. If you find a more competitive offer, it may be worth refinancing.
If you're looking to build a new house, construction loans are specifically designed to cater to the different needs associated with doing so.
A guarantor essentially acts as a safety net for your lender, as they sign onto your loan to agree to pay it off should you become unable to do so.
Purchasing a property as an investment brings with it different specifications from a lender. It's crucial to know what your options are.
Businesses big or small may wish to purchase a property for commercial purposes, which are also different from a standard loan.
Your home loan may give you an interest-only option, which allows you to exclusively pay interest on your loan for a set period.
Just because your finances may be slightly more complicated as a self-employed individual doesn't mean you can't take out a home loan.
Some lenders may allow you to apply for a home loan with alternative documents, such as tax returns, BAS and ABN registration.
Why compare home loans with Savvy?
The pros and cons of a 97% LVR home loan
Secure a home loan with a deposit of only 3% of your chosen property’s value.
Allows you to get into your property sooner, rather than taking more time to save up for a deposit at a lower LVR%.
You will need to pay considerably more on LMI than you would with lower LVR levels.
Your home loan repayments will have higher interest rates, meaning you will pay considerably more over the full term of the loan.
Your finances (debt levels, credit history, living costs, income levels and employment history) will be closer scrutinised than it would for a home loan with less LVR.
You will have less lender options than you would for a home loan with less LVR.