Not too long ago it was considered a definite possibility that a 100% home loan could be secured from a mortgage provider. However, after the 2007/8 financial crash most lenders around the world became very reluctant to offer this service. Many financial houses incurred huge losses during this time primarily because they were overly eager to lend to clients who were not suitable borrowers.
The knee jerk reaction after the financial crisis was to tighten up the required criteria for loan approval and make it much more difficult for borrowers to access the funds needed for a 100% home loan. Proof of income and past financial accountability became increasingly stringent in an attempt to prevent high risk borrowers becoming a bank’s unwanted liability, and this has lead to a generation of young Australians being denied the opportunity of owning their own home sooner.
For several years now this has remained the standard approach, however the climate is slowly changing, and banks are now in a more lenient mood to discuss potential 100% loans. The era of easy access to these funds is not likely to reappear, but there are signs that lenders are adopting a more open policy.
Here are a few ways in which a 100% home loan can be secure:
- 105% – A 105% guarantor loan can be secured if a parent is willing to be the guarantor for a substantial part of it. Banks do not need to see a deposit in this situation, but it must be stressed that parents are the preferred guarantor. Other family members or close friends may not be accepted.
- Gifted Deposits – If a borrower receives money as a gift from parents or relatives a bank is unlikely to care that the funds were not saved by the individual. Gifts are actually seen as a good reference point – it can be considered as goodwill, a sign that someone else has faith in the borrower. Normally the gift would need to be in excess of 10% – otherwise clients will still need to save 5% genuinely to show saving/payment ability.
- Personal Loan as Deposit – If a borrower has a high income and a clean debt history, it is possible to take a personal loan to pay for a deposit. It is possible to borrow up to 95% of the purchase price and a personal loan. There are a few lenders who will accept this – but it is not something that we would recommend at all. A home loan is enough normally and especially if its your first home – you normally want to make it your own – so to have additional debt to service can become quite a burden.
- Other Equity – If a borrower has another home it is possible to use the equity within that property to secure a loan. If there is sufficient equity within that property a bank will most likely not require any deposit. Although the other property would then be at risk if payment is defaulted.
- 95% loan + LMI. Some lenders allow a full capitalisation of the lenders mortgage insurance up to 99.9% LVR. This allows clients to just have the 5% saved plus legals and any government statutory charges saved. Most lenders CAP LVR at 95% – 97%. So if you have 5% saved and want to move fast then these lenders who allow the LMI to be added to the loan in full are becoming quite popular.
As always if you wish to know more about your options and what lenders are providing solutions in this low deposit space – please get in touch.