85% Home Loans

May 10th, 2011 27 Comments
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If you save up a 20% deposit on your home loan, this allows you to avoid needing to pay for lender’s insurance. Unfortunately, this isn’t always a possibility. If you can afford a 15% deposit, however, this is still much better than a 90% or 95% loan.

You can use either a 15% deposit or 15% equity in another property to apply for an 85% home loan. This offers the bank reassurance that, even if you were to foreclose, they would be more likely to break even. In most cases, you can apply for an 85% mortgage for any purpose, whether you will be buying the home for yourself, as an investment or to refinance you loan.

Some lenders will have no limit on the the amount of money that you can “cash out” on, while others will set a limitation of 20% of the value of the loan. Regardless of the lender, you will almost certainly be required to bring documentation explaining what the money will be used for.

If you have saved up a 15% deposit, you have done more than many other borrowers are willing to do. Some banks may try to convince you that you haven’t saved up enough. For this reason, it is a good idea to get in touch with a mortgage broker. In some cases, they may have deals with the lenders that allow you to apply for a mortgage with no lender’s insurance, even though you haven’t saved up the standard 20% deposit. Even if this isn’t possible, a mortgage broker will be able to find the best deal in the shortest amount of time, simplifying the process a great deal.

Lenders also consider “genuine savings” to be an important part of the decision. Genuine savings are the funds that you have saved up in addition to the deposit. In most cases, a lender would prefer that you have saved up at least five percent of the value of the loan. There are some lenders who don’t require this. Once again, a mortgage broker can be helpful in finding these lenders.

That said, whether or not a lender will be willing to work with you shouldn’t be your only consideration. The extra five percent of genuine savings provides you with a buffer that will protect you from any unexpected costs that you might have to deal with. Most financial experts will argue that it is best to keep all of your basis covered. The last thing that you want to deal with after purchasing a home loan is additional debt.

When comparing lenders, it is important to compare not only the interest rate, but the cost of lender’s mortgage insurance. The ultimate questions are how much you will spend each month, and how much the loan costs overall. All other considerations are secondary.


Not everybody is eligible for an 85% home loan, of course. While every bank has it’s own criteria that they use to determine whether or not to offer any particular loan to any particular borrower, here are some of the most common factors that they take into account.

First of all, your credit history will play an important part in the decision. With a 15% deposit, it is not quite as important that you have a completely clear history. It is, however, helpful to have a credit report free of any seriously negative decisions. Ideally, you will have made all of your payments on time for the past six months, including rent, credit cards, and other loans. This is especially important if you hope to avoid paying for lender’s insurance.

In most cases, the lender will also prefer that you have at least six months of employment with your current employer. This is not always a necessity, but it can make the application process more difficult if you don’t meet this requirement.

Your income is especially important. Your income is the source of the funds that you will be using to pay off the debt to your lender, and many banks consider it to be the most important factor of all. The higher your income in comparison to the cost of the loan, the better. Simply earning enough money to pay off the loan isn’t enough. Banks feel more comfortable if you will have extra funds leftover. Generally, it is a better idea to choose this type of loan anyway, as it is much less stressful to pay off, and provides you with the extra money that you need in order to enjoy yourself.

Banks will also consider your assets and your savings. They will often compare your current savings and assets to other people in your age. They feel that this says something about your reliability as a borrower. The more assets you have accumulated, and the more savings you have put away, the more responsible they feel you are as a borrower.

Apply for an 85% home loan.


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