Don't quite have the deposit you need to get started on your home building journey? Never fear, you have options! We call these options creative pathways to home ownership. It may very well be that one of these options suits you meaning that you might achieve home ownership sooner than you expected.
Once upon a time, 100 per cent home loans were available in Australia. But these days, while there are ways to borrow 100 per cent of the price of a home, it is not as straightforward as it used to be.
Today, most lenders offer home loans at ninety per cent or even up to ninety-five per cent of the total amount you are looking to borrow. This is called the LVR, or Loan to Value Ratio. The LVR also determines, in most cases, whether you have to pay Lender’s Mortgage Insurance (LMI). LMI protects the lender from a default on your part. It does not protect you in any way. So, the mortgage insurer is effectively taking on the risk for the lender.
As a rule, LMI is required when you don’t have enough deposit, typically less than twenty per cent. Along with your deposit, most lenders will also expect to see proof of consistent savings for a period of at least six months. If you are required to pay LMI, the mortgage insurer may impose similar conditions.
These conditions push a lot of borrowers, and particularly first home buyers, out of the market.
So, what can you do?
In certain circumstances, it is possible to purchase a block of land without the full twenty per cent deposit normally required. You’d need to research what individual developers are willing to negotiate. It may also be possible to find a willing developer who will leave half the deposit in the deal until such time as you pay off that amount. And make sure you’ve thoroughly researched your government grants and incentives. The First Home Owners Grant is only available to those who choose to build their own home or buy a brand new, never previously occupied home and comes in handy when you are scraping together your deposit.
To learn more about whether or not paying mortgage lenders insurance is right for you visit The Build Your Home Masterclass Series.