Five Things to Consider if You Don’t Have a 20% Deposit

There are a few options if your savings balance isn’t quite there yet.

When it comes to buying a home, saving for a deposit is one of the biggest hurdles. Lenders will typically require 20% deposit as a minimum, but there are a few options if your savings balance isn’t quite there yet.  

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Lenders Mortgage Insurance

If you’re borrowing more than 80% of the property value, one option includes taking out Lenders Mortgage Insurance, also known as LMI.  

  • A one-off, non-refundable, non-transferrable premium that’s added to your home loan.
  • It is collected by your lender and passed on to their insurance provider.  
  • It’s calculated based on the size of your deposit and how much you’re looking to borrow.
  • Protects your lender against any loss they may incur if you’re unable to make loan repayments.  

Low Deposit Premium

Low Deposit Premium, also known as LDP, is another option if you’re looking to purchase a home but don’t have a 20% deposit.  

  • A one-off, non-refundable, non-transferrable fee that’s added to your home loan.
  • It is paid directly to your lender, not an insurance provider.  
  • Similar to LMI, it is calculated based on the size of your deposit and how much you’re looking to borrow.
  • Protects your lender against any loss they may incur if you’re unable to make repayments on your loan.

The circumstances of your home loan will determine whether a Low Deposit Premium or Lenders Mortgage Insurance is suitable.

Boost your deposit with help from family

Saving for a deposit for your first home can be a daunting task, especially if you’re trying to do it on your own. According to Finder, more than 60% of first home buyers in Australia are turning to their parents for financial assistance to buy their first home. Also known as ‘Bank of Mum and Dad’, parents can choose to loan or gift their children a contribution to their deposit.

While this can help close the gap for a 20% deposit, lenders may require a letter from your parents stating the amount is a gift and they don’t require you to pay it back to qualify for the loan.  

Family Guarantor

If you’re exploring help from family, another option if you don’t have 20% deposit is a family guarantor. A guarantor is someone, for eg: a family member, who agrees to be responsible for your home loan repayments in any situation where you’re unable to make repayments. They help you secure a home loan by agreeing to offer their own property as additional security.  

Government Grants

Saving a deposit for your first home is challenging and the Australian Government has grants in place to support Aussies on their journey. Under the Home Guarantee Scheme, there are a number of schemes you can explore including:

  • First Home Guarantee
  • Family Home Guarantee
  • Regional First Home Buyer Guarantee

To check if you’re eligible, visit the NHFIC website here.

It’s important to consider the benefits and risks when exploring options to help you buy a home. To learn more about buying a home and factors to consider, click here.

This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍

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