Saving for your first home is no easy feat for many Australians. It requires disciplined savings habits and maybe even sacrificing a few smashed avo brunches along the way.
It’s not all doom and gloom though, for those struggling to save a hefty deposit, there is a beacon of hope: low-deposit home loans.
What is a home loan deposit?
A deposit is the lump sum of money paid upfront as a sign of commitment and financial stability when purchasing a home.
Traditionally, lenders have set the bar high, expecting buyers to fork out deposits ranging from 10% to 20% of the property’s purchase price.
For example, if you’re applying for a home loan of $750,000 you may need to outlay $75,000 – $150,000 just to secure your loan!
Breaking down barriers
This amount can be difficult to save for many Australian’s, even those who have financial stability, and the ability to repay a home loan. Enter the low-deposit home loan – designed to bridge the gap between homeownership dreams and reality!
These loans cater to buyers who may not have sizable savings, allowing them to enter the property market with a deposit as low as 5%.
Suddenly, dreams of homeownership become more attainable, offering a lifeline to first-time buyers struggling to save.
How do I qualify for a low-deposit home loan?
Before you dive in headfirst, there are a few hoops to jump through. Lenders will scrutinise low-deposit home loans with a very keen eye.
They will be looking carefully considering factors like your income, stability, employment history, creditworthiness, and capacity to meet repayments.
Some lenders will also require you to pay lenders mortgage insurance (LMI) to offset any risk associated with smaller deposits.
Government Assistance
In addition to these loans, the Australian government has rolled out a number of schemes to help ease the burden of purchasing a property.
Programs like the First Home Loan Deposit Scheme and the First Home Owners Grant can help provide financial assistance and incentives to eligible buyers, particularly targeting first-home buyers.
Weighing your options
As with any financial decision, low-deposit home loans come with their fair share of benefits and drawbacks.
Pros of low-deposit home loans
- They can provide a pathway to homeownership without requiring substantial savings upfront.
- The enable buyers to enter the market sooner, leading to potential benefits from property appreciation.
Cons of low-deposit home loans
- They can come with higher interest rates compared to loans with larger deposits.
- There can potentially be additional charges with LMI.
- If property values decline, there is a risk of buyers being overleveraged and placed in a difficult financial position.
Is a low-deposit home loan right for me?
At the end of the day, low-deposit home loans represent a shining light for many Australians dreaming of entering the property market.
However, it’s essential to tread cautiously, weigh the benefits against the risks, and seek professional advice to make informed decisions.
* This blog is intended for general informational purposes only. For personalised advice tailored to your unique financial situation, please contact NMC Finance.
