Generally speaking, it is bad to buy one of the house and land packages in Melbourne North (or anywhere else in Australia for that matter) without paying a deposit that does not come from your genuine savings.
Logic tells you that taking this route means you have to borrow more money to pull the trigger on your purchase and absorb higher interest in the process. Also, your inability (or unwillingness) to pay your share of the property price may limit your real estate options, for you may not be allowed to take out a large loan.
To make up for the great risk your lender has to take for agreeing to accept you as a customer, you also need to pay for lender’s mortgage insurance (LMI). This type of cover financially protects your lender in case you stop making payments for whatever reason.
Not meeting your prospective lender’s deposit requirements may also suggest that you are not ready to own a house yet. After all, a property is more of a liability than an asset, and its ongoing costs can eat into your monthly budget.
But if you still choose to enter the property market with no deposit, you could. Below are the most viable ways you can pursue to make it happen.
Find a Guarantor
A guarantor is a person who assumes your financial obligation in the event that you fail to fulfil repayment. Guarantor loans are not the same, and different guarantees can be used to make you a less risky borrower in the eyes of your lender. Your guarantor can use their property as an added security or bring extra collateral and use their own income to supplement yours as proof that you can afford the mortgage.
Furthermore, your guarantor may choose to cover just a portion of your loan. With a limited guarantee, your guarantor has less exposure to the financial risks of your mortgage.
If you apply for a guarantor loan, a deposit is no longer a requirement. Even better, you may borrow 5% more than what your property is worth.
Borrow Against a Different Property (Too)
Are you a homeowner already? You may use your existing property’s equity as a substitute for a deposit for your new house purchase. Home equity is a form of wealth some lenders are willing to consider to approve a non-genuine savings loan.
Use a Monetary Gift
If you are a first-time homebuyer, there are mortgage lenders who may agree to turn a blind eye to your lack of adequate genuine savings by having your parents take care of the deposit on your behalf. The money should come as a non-refundable gift from mum and dad, which is equivalent to at least 5% of the property’s price.
Take Advantage of Your Status as a High-Income Earner
Lenders favour borrowers that make a ton of money. Apart from not having to pay any deposit, esteemed professionals, such as doctors, lawyers and entertainment personalities, may also receive interest rate discounts and skip LMI altogether. Of course, you will be subject to strict lending criteria despite your impressive income.
Paying a deposit may seem like an inconvenience, but it is a necessary encumbrance to ensure that you can really afford to buy the property. At the end of the day, shouldering a portion of the property’s price benefits both you and your lender over the long term.