Where to obtain deposit payment for your future Property?
- First home saver account (FHSA) The FHSA will be abolished on 1 July 2015. From this date, all existing FHSA will be treated like any other account held by a financial institution and the withdrawal restrictions will be removed. For more information, go to www.ato.gov.au.
- No Genuine SavingsSome lenders have a no genuine savings policy which allows a borrower to borrow up to 90% of the purchase price or valuation value (see example B on the following page). This helps to lower the deposit amount required for settlement. Your 10% deposit and purchase cost do not have to come from genuine savings. It can be from the sale of assets or investments. It can also be a gift from a family member as long as they provide a statutory declaration stating that the gift is non-refundable. However if you borrow more than 80 per cent of what the lender considers to be the value of the property (known as the loan-to-valuation ratio or LVR) they will ask you to pay mortgage insurance on their behalf. What this means is that you as the borrower will have to pay for mortgage insurance that the bank takes out to minimise their risk in lending you the amount above their normal lending guidelines.It is important that you understand that Lenders Mortgage Insurance protects the lender, not the borrower in the event that you default on your loan and the outstanding value of your loan is greater than what the lender would receive from selling your property. Where a claim for loss is paid to the lender, the Lender Mortgage Insurer may seek recovery from the borrower, or any guarantor, for the balance of the loss outstanding.
- Genuine SavingsThis is a genuine savings lending policy that is available with some lenders. You may borrow up to 95% of the purchase price (see example C on the following page). The lender will require proof of genuine savings for the 5% deposit. You will have to show that you have saved the 5% over a period of 3 months. It cannot be a gift or a sale of assets. The 5% can be held in a savings account, deposit account or share investments. As the loan amount will be greater than the standard 80% lending guidelines, you will have to pay a Lenders Mortgage Insurance (LMI) premium. For a full explanation of what LMI is, see the Non Genuine Savings section above. Premium rates will be higher still for a 95% loan. Again the rates differ for each lender.
- GuaranteeIf you do not wish to pay Lenders Mortgage Insurance premium, you may still be able to obtain finance if your parents or an immediate family member is willing to use the equity in their own home to guarantee a part or the entire home loan. If the guarantee is only for part of your home loan, they have the peace of mind of knowing that the guarantee is limited to a specific amount.For more information about types of guarantees, refer to the Types of Guarantee section. Only some lenders will accept a guarantee. In cases where the proposed guarantor may include a partner of a sibling due to the ownership of the proposed security, a Credit Officer can consider these requests on a case by case basis.
Types of Guarantees
- Guarantors for Security Support Only
- Eligible Borrowers / Guarantors
- Guarantors for Security and Servicing Support
- Eligible Borrowers / Guarantors
Types of Loans available in the market
- Introductory loanBorrowers may not be consciously aware that they are ‘locked in’ to these types of loans for X number of years where loans are converted to the standard variable rate when the honeymoon period ends, whereby they end up paying the standard variable rate for 3 years after the honeymoon period.
- Discounted ‘No Frills’ LoanNo frills loan products are often lower than the standard variable loan by up to 0.51%. It might not look as ‘cheap’ as the Introductory Loans but this discounted rate is available for the life of the loan term and not just the first 12 months. It might not offer all the same facilities as the standard variable loan where you may have an offset account, credit cards, or a reduced redraw fee but if you don’t use those facilities why pay more for things you don’t need?
- Loan PackagingLoan packaging offers by some of the larger banks also provide a discounted rate to borrowers who meet the qualifying criteria set by the individual banks. There are usually a minimum loan size and a minimum income requirement to qualify for a loan package. The discount on offer is usually on a sliding scale, whereby the larger the loan size the larger the discount rate. You will not have to pay an application fee but there is an annual loan package fee.
- Asset Lend or Non-Doc LoanIf you currently own your property outright or have substantial equity (own a large portion) in your existing property, you could apply for an Asset Lend. Most lenders have loan products that can advance to you a loan of between 60% to 75% of your existing property value. Asset Lend are also sometimes referred to as No-Doc Loans. You can use the loan proceeds to fund your investment such as another property purchase or share investments.