No Deposit Home Loans

September 16th, 2009 29 Comments
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Rising housing prices in recent years have made it very difficult for many home buyers to save the deposit. Lenders have recognized this and have created the no deposit loan product.

No deposit loans are generally available for new and established buildings, owner occupied, as well as for investors. To qualify for a no deposit loan you need to be an Australian Citizen or permanent resident and currently living in Australia.
Borrowers often need to acquire lender’s mortgage insurance where the Loan to Value Ratio (LVR) exceeds 80%. Generally, the higher the LVR, the higher the premiums. Hence the premiums on a no deposit loan can be large.

Combining stamp duty exemptions and First Home Owners Grant, no deposit loans allow borrowers to gain a foothold in the market based on their ability to service the mortgage rather than having the savings required to qualify for a more mainstream loan with deposit.

No deposit loans can also be a useful tool for investors wanting to take maximum advantage of leveraging.

While no deposit loans can be secured for similar rates to standard home loans, you should be aware that there is the risk of ending up in negative equity. For example, you purchase a house for $300,000 borrowing the full amount and the property market falls by 10%, you now owe $300,000 for a property that is worth $270,000 – that’s a shortfall of $30,000 you need to recover.

As with all loans, make sure that you borrow within your means. Work out a budget, stick to it, and do not borrow more than you planned just because it is available. Also, consider the property market that you are buying into: Are the prices rising or falling?

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