You may not need to have cash in the bank for a deposit if you’re looking to take out a no deposit investment loan. Find out all about buying a property with no deposit and your options for doing so right here with Savvy.
These are loans specifically designed for property investors which use the existing equity in a home as security for a second loan, which is then used to buy an investment property. These loans can be interest-only investment home loans, for a fixed term and at a fixed interest rate, or they can be standard principal and interest home loans.
If you apply for a home loan to buy an investment property, your lender will fundamentally require two things:
If you’re wanting to buy a second property with no deposit, you’ll have to satisfy your lender on both of these counts. To prove you’re able to afford the loan repayments, you’ll have to go through the normal home loan application process and provide documentation to prove your income, your outgoings, assets and debts. The good news is that some lenders will allow you to include the potential rent you’ll receive from renting out your investment property in your income calculations. Use Savvy’s household budget calculator to record all your income and expenditure information in one handy location before you apply for your investment loan.
The security you provide to the lender should amount to 20% of the price of the property you wish to purchase. This is because lenders are usually only able to loan up to 80% of the cost of an investment property, which is known as 80% LVR (loan-to-value ratio). This security can either be in the form of a cash deposit or you can apply for a no deposit investment loan by offering the equity in your home (or another property) as security. If this is your investment plan, you’ll end up with two separate mortgages over your home, with the second one using the equity you’ve already built up in your home.
Some of the ways you can apply for an investment property loan without a deposit (or low deposit investment loans instead) include: