Everything you need to know about no deposit home loans - Pearl Financial

Everything you need to know about no deposit home loans

By Shane | Investing

Aug 07

Saving for a home is hard work, but don’t let it stand between you and your ability to break into the property market. The good news is that, if you meet the criteria, you can get a low or no deposit home loan. In this blog, we’ll talk you through everything you need to know about no deposit home loans.

Requirements

In order to obtain a no deposit home loan, you’ll need to meet a couple of requirements. These will differ depending on the lender, but often include a spotless credit rating, a responsible repayment history and an intention to buy a common type of property, such as a house, a unit, or vacant land to build on.

How to get a home loan with no deposit

Getting a guarantor

You can break into the property market by asking your parents to guarantee your home loan or co-sign it. In this case, your parents will have to prove that they could repay the loan if you failed to make your repayments. It may not be an easy decision, but more parents are helping their children fulfil the dream of owning their first home. As juicy as it may sound, avoid loans that exceed the value of your home because, if the value of the property decreases, you may end up with negative equity.

Using equity to purchase an investment property

Did you know that you can use up to 80% of the equity you own in another property to buy another one? Additionally, if you can pay the Lenders Mortgage Insurance (LMI), some lenders will allow you to use up to 95% of your equity.

Having stable employment income

If you are in stable employment that earns you enough income to meet the monthly repayments, then you are viable for a no deposit home loan. Professions like lawyers, accountants, and doctors are highly likely to be approved because of the stable nature of their jobs.

Benefits of a no deposit home loan

Eases rent burden

The property market is costly to break in to, but paying rent is also expensive in the long-run. For a first home buyer with insufficient savings, a no deposit home loan can be a great way to save on rent.

No savings required

If you have equity in another property and have no savings in the bank, such an arrangement can allow you to buy a home.

Helps beat the rising property prices

If you’ve been saving up for a home for a while, you’ll probably have found that prices have risen dramatically in the intervening period. No deposit home loans allow you to buy the property at relatively lower prices.

Are there any drawbacks?

Lengthy approvals

The need to make credit checks of both the borrower and perhaps the guarantor can take a while. If your parents are guaranteeing you, the lender will have to check and verify the documents presented to them.

Higher interest rates

If you are borrowing more than 80% of the property price, you’ll tend to attract a higher interest rate.

No deposit home loans are tremendous because they bring the dream of getting your first investment property closer.

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About the Author

Shane specialises in helping Gen Y professionals and business owners make an impact by accumulating more assets, generating more income, and having more time to enjoy life. He has a Master of Applied Finance, an MBA, and a Master of Financial Planning. He is also a terrible golfer.

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