What Counts Towards a Deposit?

By 29 April 2018Education
house deposit

Before planning to buy a house, it’s important to know what you can use other than the savings that count toward a deposit. Many first time buyers struggle to bring together a deposit due to the rising cost of living. However, if you are buying a house for the first time, as an idea, aim to go for an 80% loan to value ratio (LVR) or lower. This could save you up to $25,0000 on a home loan that is worth $350,000 and you won’t have to pay lenders’ mortgage insurance (LMI) that is worth over $10,000.

However, if you cannot save up a 20% deposit, listed below are some ways you can get a deposit faster:

 

First-time Home Owner Grant (FHOG)

If you are a first time home buyer, you can apply for the first home owners grant. This is a great incentive for those who are building or purchasing a new property or unit. There are some places in Australia where you can get first home owners’ grant for established houses as well. Depending on the state, some offer a $10,000 grant, but there are certain places, such as Northern Territory that offer larger sums like $26,000 as a homeowner grant.

Keep in mind that the value of the grant varies based on where you live, who you are and what you intend to buy.

 

Find a Guarantor

Finding a guarantor for a home loan is another alternative to get a loan with the low-deposit requirement. A guarantor agrees to take responsibility for paying off the loan in case the borrower is unable to make repayments. It can be anyone from your friends or family members who can trust you. Normally, it is the parents of a borrower who co-sign the loan agreement, because some lenders only allow family members to be a guarantor.

However, for parents to sign the loan agreement as a guarantor, they should show the ability to repay the loan in case the borrower defaults. Lenders will not approve the loan if they are not satisfied with the guarantor. If parents are about to retire, they should consider whether they will be able to fulfil this responsibility after retirement.

It’s important for the borrower to be honest and clear with the guarantor about his or her financial situation. In other words, there should be no secrets and guarantors must be aware of their responsibilities in case the borrower is unable to make repayments.

If you manage to convince someone to be your guarantor, it can save you extra costs that you may have had to spend on lenders’ mortgage insurance. It also allows you to borrow up to 100% LVR, whilst there are some financial institutions that allow guarantors to pay the deposit if they are willing to do so.

 

Use Financial Gift

Last but not the least, you can also use a financial gift towards the deposit money. Parents and elders prefer to give money as a gift to children. If you are planning to buy a house, you can ask your parents to assist you by giving you monetary gifts.

There are many lenders who accept monetary gifts or inheritances as a deposit. However, borrowers will still have to meet a certain criteria in order to fulfil lenders’ requirements. For example, the gift money should be kept in a bank account for a specific period of time for it to be qualified as a deposit. In addition to that, banks may also ask for a statutory declaration in writing, which states that it is gift money.

All in all, there are a number of monetary products that serve as a deposit. Chat to Hunter Galloway to help you find the right lender who accepts these sources of finance as a deposit for buying a new house.

Mortgage Broker

Author Mortgage Broker

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