home loan

Are you looking for a home loan? Your lender may require you to have a 20% deposit to determine how much you can borrow and which properties you can buy. 

It’s understandable that not everyone is capable of paying 20% on the spot. If you don’t have that amount yet, you might need to put off the home purchase as you save for your deposit. This may be a non-issue for those just looking around the real estate market and willing to save up until they have that deposit. 

However, if you want to own your dream home as soon as possible, delaying the purchase may not be the best scenario. This may cost you more in the long run, too.

Fortunately, there are now options available for you so you won’t have to pay the 20% deposit. This article will run you through those options.

Lender’s Mortgage Insurance (LMI)

The rationale behind the 20% deposit is to reduce the risk of borrowers not being able to pay off the loan. But that was before; banks have now changed their lending criteria to allow borrowers without a 20% deposit to pay the bank for LMI.

The LMI replaces the 20% deposit. This amount can range anywhere from 5-10% of your home loan.

Like the deposit, the LMI protects the lender if you cannot pay back your loan. 

If your property is worth a million dollars, you may be required $50,000 to $100,000 instead of $250,000. However, it’s still best to assess your financial capacity first before getting an LMI. If 5% to 10% is still out of your budget, you may have a hard time managing your succeeding payments.

LMI Waiver for Professionals

In some cases, banks can reduce the LMI costs or waive them entirely for low-risk borrowers. Those with high-paying jobs are eligible for cost reductions, cashbacks and exclusive interest rates. Doctors, engineers, lawyers, chartered accountants and IT professionals are examples.

Other Alternatives

What if you’re not in any of those professions mentioned above? How can you be eligible for waivers and discounts or the 20% deposit?

Another alternative is the family guarantee loan. As the name suggests, this type of loan uses the equity of a close family member’s home to secure your loan. Let’s say you can only provide 5% deposit. In this case, the equity of the guarantor’s home should be 15%.

Once you’ve reached a particular threshold, the guarantor’s asset will be released from the deal.

Conclusion

The 20% deposit on a home loan can be challenging to save up for, especially with the rising property prices and cost of living. Fortunately, various options can help you save thousands of dollars on your home loan, such as an LMI. In the case that your funds are still not sufficient for an LMI, you can look into using your profession to secure discounts or waivers, or apply for a family guarantee loan. Consult a trusted mortgage company regarding your options so you can get the home of your dream sooner!

Are you looking for alternative mortgage lending sources in Sydney? We at Wealthy You have industry experts who can guide you to get the best loans. Send us your mortgage application today!

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