How Do No Deposit Home Loans Work?

September 2, 2016 - Posted in First Home Buyers, Home Loans

No deposit home loans offer approved clients almost the entire amount required to purchase a property. Generally, a lender will require the borrower to have saved just 5% of the loan amount.

No deposit loans are generally an option for people who need to secure a new home or investment property quickly. Prior to the Global Financial Crisis in 2007-2009 there was an abundance of no deposit home loans and most people could borrow as much as they needed. Since 2009, lenders have become more cautious in their lending practices.

How Do They Work?

No deposit loans are popular with first home buyers who have minimal to no savings or those who are after an investment property with the most financial gains. Your chosen lender will permit you to borrow up to 97% of the property price but you will need to pay Lenders Mortgage Insurance (LMI), which can add to the cost of the loan. Mortgage insurance does not cover you in the case of a default, only the financial institution.

The loan may have to be paid off at a higher interest than if you had saved a larger deposit and opted for a standard or variable loan.

A number of lenders will agree to a no deposit loan if you have someone who can act as guarantor, usually a parent or guardian. In this situation, your parents give your lender a short-term guarantee which is backed by a registered mortgage on their own property. This arrangement can help save thousands of dollars on your mortgage

Your parents or guardians are not responsible for repayment of the loan, though. Regular monthly payments are entirely your responsibility.

Benefits of a No Deposit Home Loan

The obvious benefit of a no deposit loan is that you purchase your own property more quickly than you would with a standard loan. You can also use the loan approval to start building wealth with an investment property.

It’s a faster way to save money you’d otherwise spend on rent and it will get you out of your parent’s home or a share house.

No deposit loans still have all the regular features like being able to make extra repayments and redrawing services.

Drawbacks of a No Deposit Home Loan

The lending process has become very strict, making no deposit loans increasingly difficult to acquire. Be prepared to have your finances meticulously scrutinised.

If you have a low income or have your own business, you might find it difficult to secure the lender’s approval. Talk to an experienced mortgage broker to discuss your options.

About Multi Choice

Multi Choice Home Loans is among Queensland’s best mortgage broking companies. We have been helping families and investors with their loans for more than 15 years and we thrive on the positive word of mouth that we receive.

Multi Choice Home Loans is supported by the Australian Finance Group, the country’s largest broker network. You can find us at our head office in Brisbane or at branches on the Sunshine Coast, in Beenleigh and at Hervey Bay.

Get in Touch!

To contact Multi Choice Home Loans, either call 1300 36 36 99 or use our online form. One of our friendly local brokers will be in touch shortly.