No Deposit Home Loan
Should I Consider a No Deposit Home Loan?
Are you looking to buy a home without having to save up for a deposit? A no deposit home loan might be the right choice for you. As long as you have an eligible guarantor, you can apply for a no deposit home loan that helps you cover the purchase price of your property, and the associated costs.
How does it work?
A no deposit home loan allows you to borrow up to 105% of the total home purchase price, as long as you have a guarantor. The guarantor can put up a cash sum or an equity interest in their own property to guarantee your loan. This amount might be up to 20% of the total purchase price of the property. Once you have paid off a certain amount of your loan, you can then pay the guarantor back, or have the lender release the equity interest of the guarantor.
What are the advantages of a no deposit home loan?
A no deposit home loan is the quickest way to realise your goal of home ownership, without having to save up for a deposit. With a guarantor, you can save more money because you will not be required to take out lenders mortgage insurance. Rather than helping your landlord pay off their mortgage, you can enter the property market, and direct your hard-earned money toward your own mortgage, without delay.
Eligibility criteria for a no deposit home loan
You will usually need to fulfil some of the basic eligibility criteria in order to obtain a no deposit home loan with a guarantor.
- Credit history. A clean credit history without defaults (or repaid defaults if you have past defaults) is essential for this type of loan.
- Repayments. You need to show that you can make the required loan repayments.
- Property profile. The property to be purchased needs to be a residential property. This also applies to your guarantor’s property if they are using their home equity to guarantee your loan.
- Employment history. A strong employment history is usually required for this type of loan.
- Asset position. The lender will also usually look to whether you have a strong asset position or not, and whether your assets are greater than your liabilities.
Is my guarantor eligible?
Just like you, your guarantor will need to fulfil basic eligibility requirements to guarantee your loan. First, your guarantor needs to be a close or immediate family member, such as a parent or a sibling. Cousins and friends are usually not eligible.
Your guarantor should have property in Australia, and be able to demonstrate that they have sufficient equity in that property to cover 20% of your property purchase price. In addition, they need to have a solid, clean credit history of their own.
What about mortgage insurance?
When you have a guarantor, you will usually not require mortgage insurance. This is because the lender considers the risk of default to be significantly lower when you have a guarantor who provides security for your loan.
Financing extra costs
As mentioned above, there are lots of advantages in choosing a no deposit home loan. Provided that you have an eligible guarantor, you can borrow up to 105% of the property price, and use the loan to cover extra costs, such as conveyancing, legal fees, and stamp duty.
What should I do to start the application process?
If you are interested in a no deposit home loan, we can assist you. Contact ABC Mortgages today for a free discussion about your eligibility. We will guide you through the entire application process, from getting the paperwork together, to determining whether your proposed guarantor is eligible.