The standard procedure for purchasing real estate in Australia is for the lender to fund 80% of the property cost, while the borrower pays the remaining 20%, in the form of a deposit, which is payable when the contracts are exchanged. In a perfect world, this would not be an issue, yet for many people (especially first-time buyers) finding the deposit can be an impassable obstruction. The already high price of real estate in the Sydney area, for example, often leaves a potential buyer crunching the numbers and realising a 20% deposit is simply not possible, yet there are ways around this.
Seek Out An Independent Mortgage Broker
People looking for home loans in Sydney, should search for an established independent mortgage broker, as this company can help you secure a property deal without having to pay a deposit. Your choice of mortgage broker will define the scope of available packages, which is why you should choose a broker who has connections with many lenders.
Lenders Mortgage Insurance
LMI, as it is known in the industry, is a policy that protects the lender in the event the borrower defaults, and while the lender would prefer the borrower to pay at least a 5% deposit, it is possible, to secure the deal with no deposit paid, although you will pay additional interest, of course.
This is another way to circumnavigate paying a deposit, and it works by using someone else’s property equity to guarantee the loan. Simply put, someone is prepared to guarantee a loan for the deposit by placing their equity on the table, and it is important for the guarantor to understand that they are liable, should the borrower default for any reason. This would normally be something that a family member or very close friend would be prepared to do, as there is an element of risk for the guarantor. If you are undecided about whether to buy or rent property, there are articles you can find online that can help you make your decision.
Removing The Guarantor
Over a period of time, the borrower would accrue some equity, and when that equity is of an adequate amount, they can repay the deposit loan and therefore remove the guarantor, who would have no more liability, as the loan has been cleared. If parents, for example, put their equity up as the collateral for their child to raise the deposit to buy a property, it might take 5-10 years before their involvement can be terminated.
The Benefits Of A No-Deposit Purchase
Land and house prices are constantly rising, and if you buy a house at today’s prices, you are benefitting for any rise in value from day one, yet if you wait the few years it would take to save the deposit, the house will cost that much more, due to rising land prices. Being able to move in now is preferable to renting for another few years, and for many young Australian couples, asking their parents to guarantee a deposit loan is the only way they could go ahead with the purchase.
Lacking the ability to pay a deposit does not necessarily mean you have to wait, as there are alternatives, and with the help of a good mortgage broker, you will soon be moving into your dream home.
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