Avoiding Lenders Mortgage Insurance
How to Avoid Lenders Mortgage Insurance
Do you want to avoid lenders mortgage insurance? The secret to avoiding lenders mortgage insurance when you do not have a 20% deposit saved up is to apply for a 100%, or 105% home loan, with a guarantor. To be eligible for this type of home loan, you need to have a guarantor who has sufficient cash or equity in their home to secure your loan. Once you have built up enough equity in your new home, you can then release your guarantor’s equity, or return their funds.
Am I eligible to apply?
As a borrower, you will need to satisfy some basic criteria. These can vary from lender to lender, but generally they cover assets, income, property type, credit history, and employment record. For example:
- You should be in stable employment and out of your probationary period. You might need to show that you have been employed in the same job for at least one year, or in the same type of work for several years.
- You need to evidence sufficient income to cover your mortgage repayments.
- As the borrower, you need to show a clean credit history with no defaults. In some cases the lender might accept past defaults if you have paid these in full.
- The property should be a residential property and not a commercial property.
- Your total assets should outweigh your total liabilities, giving you a positive net asset position.
If you are eligible, you will need to check that your guarantor is also eligible to guarantee your loan.
Can my friend act as my guarantor?
Only immediate family members can guarantee your loan. Parents and siblings are eligible, but cousins and friends are usually not. Your parent or sibling should meet the basic criteria for guarantors, including:
- Like you, they should have a clean credit history with no defaults. Should there have been be any defaults, these must have been paid off in full.
- The guarantor needs to own property in their own name in Australia, with sufficient equity to cover at least 20% of your purchase costs. Alternatively, they can offer a lump cash sum of at least 20% of your purchase costs to guarantee your mortgage.
Why should I consider taking out a guarantor home loan to avoid lenders mortgage insurance?
Buying a home is a major financial commitment, and you will want to save as much as possible on your loan costs. Lenders mortgage insurance can be significant, so if you are eligible and have an eligible guarantor, you can avoid lenders mortgage insurance and save more on your overall home purchase expenses by taking out a guarantor home loan.
Another benefit of guarantor home loans is that in some cases, it is possible to borrow more to cover associated costs such as stamp duty, and conveyancing or legal fees. This allows you to save more on upfront costs and stagger the costs by capitalising them into your loan.
How to get started with the application process
If you are interested in finding out more about taking out a guarantor home loan to avoid lenders mortgage insurance, contact ABC Mortgages today for a discussion. We will provide you with a free consultation to determine whether you are eligible for the loan. We can then put you in touch with reputable lenders who offer the right type of loan for your needs.