Raising the usually required minimum deposit of 5% can seem an insurmountable task given that many first home buyers are now spending up to $500,000 on their first home. Rent, kid’s expenses, the costs of petrol and food can make it difficult to accumulate an extra $25,000 on top of paying for all the usual costs of living.
But there are other options available – albeit only to some.
Here in WA we have a lender known as Keystart which is owned in whole by the WA Housing Authority. Keystart provides low deposit loans to West Australian residents who cannot save up the usual 5% deposit that most lenders require.
Keystart have very strict criteria as to who can qualify for their loans, including rules on:
• Maximum income you can earn to qualify
• Maximum you can pay for a house to qualify
• Length of time you have been in your current job
• How good your credit rating is
Keystart tend to have slightly higher interest rates than the major banks however they do not charge a lender’s mortgage insurance fee that other lenders would charge. This means that your upfront costs can be lowered by many thousands of dollars. What is lenders mortgage insurance? When you’re purchasing a home with less than a 20% deposit, lenders mortgage insurance is a charge added onto your loan, which protects your lender in the unfortunate event of you defaulting on your home loan.
They also require only a minimum of 2% deposit (depending on eligibility criteria) – half of which can be covered by the first home owners’ grant if applicable.
Home Loan Guarantor
Another way to purchase a home with little or even no deposit is to use a security guarantor. This means that a member of your immediate family allows their home or investment property to be used as collateral as a deposit to buy your house rather than you fronting up the cash.
It is usual for the guarantor property to be used to cover 20% deposit plus the costs to purchase if required. There is still a loan in place to cover the 20% deposit, but you don’t have to save up the money as a deposit. This means that the guarantor is not guaranteeing the whole loan, only part of it.
Again, there are very strict rules in place for this type of lending – mostly to ensure that the guarantors understand their responsibilities for the debt if you default on your payments and also that they understand the implications of having the mortgage taken out over their property as well.
Many lenders offer this type of loan however they all have different rules surrounding their acceptable criteria so ensure you speak to a reputable broker to understand the differences between them each and the affects each will have on the guarantors.
Purchasing your first home can be a daunting time, with a lot of information to process and consider. Carbon Finance are hosting a first home buyers’ seminar on Thursday 30th March. Visit our Eventbrite page to book your free ticket!