Securing your first home loan
INDUSTRY INSIGHTS
Tweed Coast Home Loans Mortgage Broker Lindsay Olsen discusses options available for first home buyers.
The rapid rise in property prices in our area over the past five years, paired with high inflation and low wages growth, has created a perfect storm working against those looking to save a 20% deposit to purchase their first home.
Thankfully, there are solutions to get onto the property ladder without needing the whole 20% deposit, saving you thousands in Lenders Mortgage Insurance (LMI)*. Here are two ways to secure a property sooner.
1. Guarantor loans
Someone who already owns property (usually a family member), and doesn’t have a high loan to value ratio (LVR), uses the equity in that property as security for some of the deposit on your new home.
You might have saved a 5 or 10% deposit (or maybe you haven’t saved anything yet) and you need help to secure the full 20%. The equity in the guarantor’s property covers this difference between your available deposit and 20% of the new property value.
Importantly, the guarantor doesn’t have to physically contribute any cash to your deposit. The home buyer will borrow the guarantee amount plus the remaining 80% of the new property value. The buyer simply needs to be able to afford the repayments on the total borrowed amount.
When the loan has decreased, or your property value has increased, to the point where the LVR is below 80%, the guarantor is released, leaving the home buyer solely responsible for all future payments.
Guarantor loans are a great way for Mum and Dad to help their kids buy their first home sooner. Anyone considering going guarantor on a loan should seek independent legal and financial advice beforehand.
2. The Home Guarantee Scheme (HGS)
The HGS is a Federal Government initiative which allows eligible first home buyers to purchase property with as little as a 5% deposit.
The HGS is similar to a guarantor loan in that the borrower doesn’t have to pay for LMI and can borrow up to 95% of the property value. With the HGS it is the government, rather than a family member, that guarantees the bank won’t lose money on the transaction.
In more good news, under the HGS the government doesn’t own any of your home or the potential capital growth you might achieve while you own it. It truly is a helping hand for those with a low deposit.
Personally, I think the HGS is one of the best ways for first-time buyers to get into property as soon as they can.
If you would like to learn more about guarantor loans or the Home Guarantee Scheme, contact Lindsay Olsen from Tweed Coast Home Loans on 0424 809 007 or lindsay@tweedcoasthomeloans.com.au
Visit tweedcoasthomeloans.com.au, @tweedcoasthomeloans on Instagram, or in-person at The Pavilions Marketplace in Terranora.
*LMI is a one-off insurance premium payable by borrowers whose loan amount is more than 80% of the value of the property, known as the loan to value ratio (LVR). LMI doesn’t insure you, the borrower, it protects the lender in the event that you default on your loan and they can’t recoup the
full loan amount after selling the property.
