While no deposit home loans can help first home buyers break into the property market, you should always do your research before taking out a loan to make sure it’s the right one for you. Generally, there is a very tight criteria to be eligible for a low or no deposit home loan and the interest rate of these loans can often be higher than other loans.
Many lenders and banks will offer a low deposit home loan where first home buyers only need a deposit of five per cent. The downside to a loan with a low deposit is that you’ll likely have to pay lenders mortgage insurance. Lenders mortgage insurance needs to be paid when you have a deposit less than 20 per cent of the entire property’s value. This is to protect the lender or the bank who considers you a risk.
The First Home Owner Grant can usually form at least part of your deposit. However, you still need to allow for the other upfront costs of buying a home. These costs include conveyancer fees and moving expenses. If you’re-purchasing a brand new home, the grant will normally be paid on settlement, however, each state and territory has different requirements for accessing the first homeowner grant.
You can use your super for your first home deposit if you take advantage of the First Home Super Saver scheme. The scheme is designed to help first home buyers save a deposit faster by voluntarily contributing money to your super. These contributions can then be withdrawn to form part of your deposit. There are strict rules around accessing your superannuation before you retire and you’ll need to satisfy strict eligibility criteria before you are allowed to do so. Speak to your accountant before you access your superannuation to avoid paying more down the track.
If you have no deposit or a very low deposit and your parents are able and willing to provide financial help, they can become guarantors. There are rules that apply to become a guarantor, such as your parents must own their own home. The guarantor doesn’t need to pay anything, and if their guarantee is worth more than 20 per cent of your home’s value, you may also be able to avoid paying lenders mortgage insurance.
There are a number of options available to first home buyers who have no deposit saved or a low deposit saved. It’s always valuable to do your research first and speak to your financial advisors before deciding on the home loan that’s right for you. If you’d like an introduction to one of our trusted mortgage brokers please feel free to get in touch!