Saving enough for a suitable deposit is a tall order these days. The median house price in Perth is now well over $500,000 and with higher prices comes the requirement for larger deposits. For example, if you are looking to purchase a $500,000 house, then (assuming you're a full doc borrower) a lender will typically let you borrow up to 80% of the property value (not necessarily price) without having to pay Lenders Mortgage Insurance. In this case, you'll need a $100,000 deposit + enough funds to cover any purchase costs as well. Building up this deposit amount can be tricky, so what are your low deposit options in Western Australia?
Here are your options:
Low Deposit Home Loans - 5 to 20% Deposit
If you can't save 20%, don't panic. There are several lenders who will still lend up to 95% of the property value, but they will charge you Lenders Mortgage Insurance. Lenders will perceive you as increased risk of defaulting on your home loan if you have to borrow more than 80% of the value of the property and as such they will require you to pay LMI. This only protects the lender (not you) in case you default on paying your home loan repayments, but it is a tool that can get you into property sooner and with a lower deposit.
Keystart Home Loans - 2% Deposit
Keystart Home Loans was established in 1989 by the WA Government to help eligible West Australians achieve home ownership. Keystart offers a number of low-deposit home loans with the lowest minimum deposit required being just 2%, of which, 1% needs to be genuine savings - all without the need to pay LMI! There are a number of stringent criteria that need to be met in order for you to qualify for a Keystart Home Loan.
Guarantor home loans - 0% Deposit
If you're lucky enough to have a close family member with substantial equity in their home, then you could ask them to act as a security guarantor for your home loan. If they agree, then the lender will use their property as additional security and this will enable you to borrow in some cases up to 105% of the property value without the need for a deposit. Another great benefit of having a security guarantor is that this eliminates the need to pay LMI as well.
Low Deposit Home Loan Advantages
- Get onto the property ladder fast by avoiding the time required to save for a deposit - this can be useful if property prices are increasing fast.
- Keystart & Guarantor home loans generally eliminate the need for you to pay Lenders Mortgage Insurance.
Low Deposit Home Loan Disadvantages
- Remember, the smaller the deposit, the more you have to borrow - meaning larger home loan repayments.
- Lenders often charge higher rates of interest to those borrowing at higher Loan to Value ratios (LVR - simply the loan divided by property value).
- You will likely be required to pay for Lenders Mortgage Insurance. (excluding Keystart or Guarantor home loans)
Want to talk more about your home loan options?
If yes, then please get in touch with me today and I'll be happy to help. All my home loan and mortgage services (from the initial meeting, right through to home loan settlement) are completely free to you.