06 Jun Zero Deposit Home Loans
In most cases, borrowers work hard with their brokers or lenders to negotiate a low-interest rate on their home loans to get the cost down. But there’s another way to save money upfront — the zero deposit home loan. In this article, we’ll give you tips and information about getting a home loan without a deposit at all!
Is there really a no deposit home loan?
A 100% home loan is possible, but lenders will require things such as a guarantor, good credit history, and a stable source of income (usually in the form of a full-time job), among other things. If these seem challenging to achieve for some, it’s important to note that these factors can also help you get approved for other loans in the future.
- A steady source of income – This indicates to the lender that you will be reliable in making repayments because there is a little to a no chance for you to lose your source of income.
- Credit Rating and Repayment history – Check your rating with a credit reporting agency. This will help the lender understand your spending habits and dependability as a borrower. If your score isn’t good, make sure to work on it before applying for a no deposit home loan.
- Property type and location – The location of the property you choose is very important. Lenders want something that would be easy to resell if things don’t go as expected. They want homes in highly desirable locations, which are generally more expensive than other areas.
If you succeed in getting a no deposit home loan, you’ll still have pay stamp duty, legal fees, building inspection and, other upfront costs. Make sure you’re aware of all the costs and are able to cover them.
Ways to get a home loan with a low deposit
- Use a personal loan – Using a personal loan to pay for your home loan isn’t ideal for some, but the advantage is that you can use it to cover some of the deposit. This type of loan is available in fixed or variable interest rates and is usually unsecured. There’s also a chance that the lender will give you a higher interest rate than a borrower with savings.
- Open a special savings account – Lenders prefer borrowers with savings and opening a savings account and setting aside a portion of your salary on a regular basis indicates that you will be able to make regular loan repayments.
- Ask help from family – A parent can be a guarantor for first home buyers seeking to get a home loan.
- Equity – Those who have a considerable amount of their home’s equity might be kind enough to gift you with a portion of it and use it to cover some of the deposit.
- Guarantor – If you have a guarantor, you do not need to pay a deposit for a home loan because the guarantor’s property can be used as collateral. It’s important all parties know the risks involved because if the borrower cannot or will not make repayments, the guarantor is legally liable. A guarantor will generally use his or her property as security, and the Loan to Valuation Ratio (LVR) must be 80% or lower. To calculate your LVR, Home Value (100%) – Deposit(Min 20%) = Loan Value (Max 80%). (If you increase your deposit, your Loan Value will go down.)
- Co-borrower – This person will sign the home loan contract with you which means he/she also owns part of the property. In the event you couldn’t continue paying, he/she will be the one responsible for the repayments.
- Sell assets – Some consider selling assets like vehicles and boats to have enough for the 5% of the deposit. This is the required amount when you want to apply for a low deposit home loan. Many have seen this approach as practical because letting go of some items can help you invest in something bigger like a home.
- Talk to a mortgage broker – It takes some work to get a home loan without paying a deposit. Mortgage brokers can help make this process easier by explaining everything each step of the way. They also help you get a suitable loan term using what you have at present and tell you about other things you might need.
If you’re looking to get a home loan, contact Finance Ezi. We have a team experienced agents that can help you find and compare loan offers from many lenders. Give them a call on 1300 425 425 or apply online.