In our current economic climate we are seeing a general tightening of purse strings, increased cost of living and stagnant wage growth. These conditions combined with increasing property prices do not make it easy to save the amount required for a property deposit - usually around 20% of your purchase price.
However, the allure of property investment remains strong for many Australians. Whether it be your next residence or an investment property you are considering, the potential for providing solid ongoing rental income (as seen in the current market across residential and commercial properties), and strong capital appreciation (given increased property prices across the country), it isn’t hard to see why Australians love to invest in property.
So if you are coming up a little short with your deposit, here are some ways to get around it.
Speak to your broker about a low deposit loan
For anyone who has not quite reached the required 20% deposit needed to complete a property purchase, the banks will ask that you purchase Lenders Mortgage Insurance (LMI). This insurance is a policy paid for by you, with the benefit going to the bank. In the event that you are unable to meet your repayments, the bank will sell the asset. If the amount of debt owing on the property is greater than the amount received by selling the property, the insurance policy covers the shortfall owing to the bank, meaning you don’t need to find extra money at a time when you have been unable to meet your repayments.
The downfall here is that LMI can be quite expensive, however most banks will allow you to add the premium to your loan. There are a range of different LMI providers and each bank works with one or two of the insurers. To obtain a general indication of the premium you will need to pay, check out the Genworth LMI Premium Calculator by clicking here.
There are some lenders that will provide a loan with as little as 2-5% deposit, but they will also charge for it by way of higher interest rates or other fees.
In good news, some lenders in recent weeks have come out with new low deposit products, where they have removed the need for LMI with a deposit of 15-20%.
Not sure how much deposit you need? I can help - contact me by clicking here for a free, no obligation deposit calculation.
Use equity in another property
Already own a property? Then you can consider using the equity you have in it towards the deposit for another property.
Not sure how much equity you hold? Calculate it by finding the difference between the current value of your property and the amount you still have owing on it.
If you are not sure of the current value of your property contact me and I can provide you a property report with an indication of the current value, free of charge.
Once you know your equity amount, the lenders will use a formula to calculate how much of your equity they will allow you to access. In most cases, it is 80% but this does vary lender to lender.
Lenders look at many other factors when considering a re-mortgage of a property for investing. So speak to me today so we can evaluate what options are the best for your circumstances and for your needs.
Ask your family to act as guarantor
Whilst this isn’t an option for everyone, if your family is in a position to help, you could consider a family guarantee loan.
If a relative of yours holds equity within their own property, it can be provided as additional security for your home loan. This decreases your deposit requirements and may help you to avoid LMI fees.
Whilst you start to pay down your loan, once you reach an agreed equity position, you can arrange for your relatives security to be released from the arrangement.
Whilst no cash is exchanged in the application stages, should you be unable to meet your repayments, your guarantor will be responsible for paying back their secured portion of the loan which means their own home may need to be sold to repay the debt.
By entering into an agreement of this nature, your relative is taking on a high degree of risk,. We can help explain this arrangement and the financial obligation for both yourself and your relative.
Invest with a friend
If buying a property on your own is a stretch right now, you could consider investing with a family member or a friend. This may give you the opportunity to purchase a larger home, avoid paying for LMI and may get you into the market sooner.
If this is an arrangement you are considering, we strongly recommend having an agreement drawn up and can provide a referral to a lawyer who has experience in these arrangements. By having a contract put together, the nature of the partnership and the obligations for all involved are clear from the outset.
Using your SMSF
Whilst the rules around this kind of arrangement are strict, it is a very attractive proposition - especially for business owners looking to purchase a owner-occupied business property.
We are experienced in SMSF Lending and have in house financial advisers who can also talk through the complexities of such an arrangement.
If you would like any more information on any of these topics, feel free to contact Jenna today for a no obligation conversation about how we can make your property dreams a reality.