Buying a home is a life goal for many people in Australia but it’s not cheap. If you’re struggling to buy a home the traditional way, there may be schemes or options that you’re not aware of that can speed up your transition from renter to owner.
Not enough deposit
If you speak to older friends or relatives, you’ll likely be told about the magical 20% deposit figure. This used to be the target for all home buyers because at 20% most lenders don’t charge LMI. Anything under that and you have to pay for their insurance. While this is an extra cost, it’s often manageable. At the most, it’s probably going to be a few thousand dollars but it’s added onto your mortgage so you have up to 30 years to pay it (and associated interest) off.
While this is still the case for some borrowers, there are other options out there.
Look at all your options (10% deposit?)
The idea that you need a 20% deposit to avoid LMI is a guideline not a fixed rule. Each lender chooses the amount of risk they’re willing to take on and it does seem like a lot of them have chosen 20% as the right number.
Not all of them have, though. As mortgage brokers with plenty of lenders on our panel, we know that some don’t need such a large deposit. We have some lenders who won’t charge LMI for borrowers with just a 10% deposit – regardless of whether you’ve owned property before or not. If saving half the standard deposit is appealing to you, get in touch.
First Home Loan Deposit Scheme (5% deposit)
If you’re a first-time buyer, then you can definitely save less than 20%. The government’s First Home Loan Deposit Scheme means you only need a 5% deposit – no LMI – to be considered by mortgage providers.
Some people will still argue that it’s better to save up more so that the amount you borrow is smaller, but others think that getting on the market sooner is the better move.
Family Home Guarantee Scheme (2% deposit)
There’s even better news for single parents as there’s an incentive to get you onto the market with just a 2% deposit (and no LMI to be paid). The Family Home Guarantee Scheme is available to single people (so no partners regardless of their relation to your child) who currently don’t own property and who want to buy somewhere to live (so no investment properties).
Like with the 5% deposit scheme, there are questions over borrowing 98% of a property’s value but often the fact of having your own home outweighs any of those concerns.
Guarantor (0% deposit)
If you want a home now but have $0 in your account you can still get a home loan if you have a guarantor. Guidelines for guarantors vary by lender, but generally it’s someone who’s closely related to you (sibling, parent, grandparent etc) as some will reject anyone outside your immediate circle.
A guarantor takes on the legal responsibility for your home loan should you default. If you’re confident you’ll be able to make repayments then it can be a smart move. Later on, you can write out the guarantor so their responsibility is gone.
Guarantor loans are available for all buyers. You don’t have to be a first-time buyer, you don’t even have to be buying a home for yourself.
Not enough borrowing capacity
Sometimes lenders give you news that you don’t want. If your deposit is big enough, sometimes your borrowing capacity won’t stretch to cover the home you want. Aside from the usual advice (get a better paying job, reduce your expenses and cancel any unneeded credit cards), you can significantly increase your borrowing limit by going in on the loan with someone else.
Depending on who you’re buying with, you may want to make sure you have a legal agreement on what should happen if either party wants to sell their share of the home.
Buy with a partner
In an ideal world, we’d all be in happy relationships and able to buy a home with our loved ones. There may be good reason not to have your partner on the home loan (eg if that means you wouldn’t qualify for the 5% deposit scheme) but if it’s an option it’s worth exploring.
A broker will be able to run the numbers for you both with and without a partner so you can see the difference. Sometimes paying the LMI might be a good investment to be able to buy a more expensive home.
Buy with a friend/relative
There’s nothing to stop you buying a home with someone who isn’t your partner. Plenty of people buy with a sibling, friend or parent. While you can sometimes use this person as a guarantor, that means they don’t actually own any of the property and they won’t contribute to the home loan repayments.
With adults living with roommates longer, it’s becoming more common for them to buy together, too. If you’re going to live with someone, there are definite benefits to paying off your own mortgage rather than someone else’s.
Getting help with your home loan
If you want to buy a home but you’re not sure if you can afford to yet, give our brokers a call. A conversation costs nothing (in fact, our whole process costs nothing), but it might help give you direction and motivation to purchase your own home.
