A few years ago, borrowers could get 100% or 105% loans easily. Everything changed with the GFC. Now, lenders are more cautious with how much money they loan to borrowers.
Smartline Personal Loan Advisor Odette Shahnazari stated today that lenders can offer as much as 95% of the purchase price. They will accept as little as 5% down.
“However, most require a 10% deposit, as well as sufficient funds to cover stamp duty and other costs such as the establishment fee, valuation fee and legal fees,” she says.
“For borrowings more than 80% of the value of the property, the borrower will also have to pay a one-off ‘Lenders Mortgage Insurance’ (LMI) premium to cover/protect the lender, if they default on their loan.”
In order to qualify for a high LVR loan, you need to reassure your bank or lender that you constitute a ‘good credit risk’. This means you have to show them that you’re a reliable, trust-worthy loan candidate with a good job and solid debt repayment history.
You also need to qualify for LMI, and in order to access this, “the lender needs to be satisfied that the borrowers’ 5% deposit is their own genuine savings over a minimum of six months,” Shahnazari says. “This needs to be confirmed through original bank statements.”
Some lenders will accept three months worth of genuine savings, so it’s worthwhile checking with you lender before you apply.
It is best to organize your finances at least three to six months before applying for a loan. This will show you have solid savings.
“A good start to any wealth creation plan is to have a ‘budget planner’ and a ‘savings plan’,” Shahnazari explains.
“A budget planner can help cut down the unnecessary expenses, and a good savings plan should see you put a decent chunk of your income – at least 10% – in a high-interest savings account.”
Some homebuyers are lucky enough to be gifted a deposit, and in this situation it’s important that you handle the money responsibly in the eyes of your lender.
“Most banks require the gifted funds to be in the borrowers’ account for a minimum of three months, and the family member providing the gift will be required to complete a Statutory Declaration to confirm the gift is ‘unconditional’ and the borrower is not required to repay the money,” Shahnazari says.
“Also, even if the borrower receives a gift from a relative, they still need to provide evidence of their own genuine savings.”
Finally, for those buyers who are in a good repayment affordability position, but do not have any genuine savings to offer as a deposit, a ‘Family Guarantee’ may be an option.
“This is where family, usually parents, offer their house as security. It is generally done as a ‘Limited Guarantee’ where the parents guarantee 20% of the loan so that the LVR remains 80% or lower,” Shahnazari says.
“It’s not a bad way to save thousands of dollars in LMI. A prime candidate could be a young couple who has recently graduated from university and is earning a high income, but they haven’t been employed long enough to save the minimum deposit.”
Shahnazari warns that not all lenders offer a Family Guarantee, and the ones that do have very different policies, so you’ll need to discuss your options with your lender or mortgage broker.