loaneasyWith the ongoing surge in property prices, entering the housing market with a limited deposit might seem daunting. However, there are several strategies that can help you realize your homeownership dreams sooner rather than later. Here, we’ll delve into four effective methods to purchase property with a small deposit.
- Lenders Mortgage Insurance (LMI)
- Home Guarantee Scheme
- Guarantor Loan
- Purchasing with someone else
1. Lenders Mortgage Insurance (LMI)
Lenders Mortgage Insurance (LMI) serves as a safeguard for lenders in case borrowers default on their loans. While traditionally, a deposit of at least 20 percent was deemed necessary to avoid LMI, nowadays, it’s possible to secure a mortgage with a much smaller deposit, albeit with the added cost of LMI. This upfront premium, added to your home loan balance, enables borrowers to proceed with a deposit less than 20 percent. The cost of LMI varies based on factors such as the borrowed amount and Loan-to-Value Ratio (LVR).
2. Home Guarantee Scheme
The Home Guarantee Scheme, a federal government initiative, aims to facilitate homeownership for first-time buyers. Under this scheme, eligible individuals can secure a mortgage with as little as a 5 percent deposit, with the government acting as a guarantor for the remaining 15 percent. This arrangement assists borrowers in reaching the lender’s required 20 percent threshold. Certain criteria, including income and eligibility parameters, must be met to qualify for this scheme. Additionally, there are price caps imposed on eligible properties.
Moreover, variations of this scheme cater to specific demographics, such as single parents, who may qualify for assistance with a deposit as low as 2 percent, further broadening accessibility to homeownership.
3. Guarantor Loan
A guarantor loan presents an avenue for prospective homeowners to leverage the equity or security of a close family member’s property to bolster their own deposit. Primarily available to first-time buyers, this arrangement mandates the borrower to manage repayments and meet serviceability requirements based on their individual income. While the guarantor’s involvement mitigates the risk for lenders, it’s crucial for all parties involved to comprehend the responsibilities and implications associated with this type of loan.
4.Purchasing with someone else
Pooling resources and purchasing property jointly with another individual can be a viable strategy for those unable to qualify for a loan independently. This collaborative approach allows one party, perhaps with a robust income and strong serviceability, to partner with another who possesses a saved cash deposit. Effective communication and a well-defined plan are imperative in such arrangements, as they entail shared management of the property and ongoing expenses. Contingency plans should also be established to address scenarios where one party may need to sell their share of the property.
By exploring these avenues and understanding the associated opportunities and considerations, aspiring homeowners can navigate the property market with confidence, even with a modest deposit.