Property prices in Australia are just going up and up, and there are so many alternative avenues to spend money now. Whether it’s travelling, going out for avo on toast or just a beer at the pub, now more than ever people are struggling to get into the property market.
There are a number of reasons why people find it hard to climb the ladder of buying a property, for example,
- They don’t have a deposit
- They’re paying rent and couldn’t save enough money.
Regardless of what the reason is, you can still purchase a property with little or no deposit. While yes, it is best to have a deposit of 20% of the total purchase price before applying for a loan, you can still buy your first home if you do not have enough cash in your pocket.
Given below are three simple options that will help you achieve your goal.
Option 1: Deposit the Hurt Money
If you plan to buy a home alone or with a family member, you can do so with a small amount of money. All you have to do is keep 5% of the purchase price as a deposit. Mortgage insurers call it ‘hurt money’.
But what is the benefit of using hurt money?
It makes the insurer believe that this is your hard earned money and shows your commitment to achieving your goal. They consider hurt money as genuine savings, which eventually lowers the risk of commitment failure in their eyes.
However, they need a proof that you are telling the truth. Therefore, you have to submit a savings account statement for a period of 3 months, which further strengthens your case that you are well disciplined when it comes to savings. Your overall account balance must have increased if you use more than one savings account. But it is important that you keep it steady over the last three months. So, when you provide a bank statement to the mortgage insurer, it allows them to see your financial activities over the last three months and verify that hurt money is your genuine savings.
Option 2: Show the Evidence of Rental Payments
Another reason why some people are unable to save enough money is because they pay rent. But you can use this to your benefit. Instead of giving proof that you have been disciplined with your commitment, ask your real estate agent to provide you with evidence of rent payments. Although you still need 5% of the purchase price as a deposit, you are not required to show the evidence for this money.
For example, the amount can be:
- A tax return,
- A gift money,
- A bonus from work, or
- A money received from the sale of a car.
The only condition is that it should not be a loan or borrowed cash.
Option 3: Offer a Property as Co-Security / Guarantor Loan
This is where you ask your family to assist you. For example, if you want to buy a house, you ask your parents for help. They might not have enough cash to offer, but you can use their house as security. This method was not allowed in the past, but now a number of lenders have introduced policies that allow a person to use another property as a security. They allow your immediate family members to offer their house as a co-security. In other words, the financial institution will accept that property as a substitute of a cash deposit.
Using a property as co-security has its pros and cons. The advantage of using this policy is that there is no need for mortgage insurance, which saves a lot of money. On the other hand, the drawback of signing up for this policy is that your immediate family members get stuck with you. They are eventually released from this obligation once you pay down the loan amount or if the value of property increases. There are some banks who offer better deals compared to others, so speak to us about this.This option will allow you to buy a home with no deposit if you are buying a home for the first time and entitled to get a first home owner grant. It will also enable you to cover your cost, such as legal expenses or transfer cost, etc.
This option will allow you to buy a home with no deposit, along with if you are buying a home for the first time, you are entitled to get a first home owner grant. It will also enable you to cover your cost, such as legal expenses or transfer cost, etc.
To summarise, there are a number of options to purchase a home with little or no deposit. However, you should always talk to a financial professional before taking such a big decision. Also, you must know that smaller deposit means larger repayments. Therefore, always select a plan that is within your budget.
Chat to our team of home loan experts today on 1300 088 065 or email Joshua Vecchio at [email protected]