How To Buy A House With No Deposit
How to buy a house with little or no deposit is a more common query than most would think, especially as the cost of living just keeps getting more expensive. The good news is that with a few terms and conditions attached – it can be done.
Going down the path of a guarantor loan is how many people buy a house with little or no deposit, especially first homeowners. With the median house price in Brisbane now sitting between $550, 000 to $900, 000 depending on the suburb – once we factor in rent, bills and even groceries, the mammoth task of saving for a deposit is only getting harder.
Whether we care to admit it or not, a lot of first homeowners receive some form of assistance from their parents. This might be a contribution towards a house deposit, assisting with the home contents, or even allowing their children to move back home to save on rent. Another method that is gaining increasing levels of popularity is the option of a guarantor loan.
What Is A Guarantor Loan?
A guarantor mortgage loan is quite similar to a standard home loan, only a selected guarantor (usually a parent or guardian) signs the loan as your “backer”, even though they have no rights over the property itself. While guarantor loans increase your equity and chances of approval, in the event that you should default on the loan – the guarantor is responsible for paying it back. It’s their own property that is acting as security against your loan, so being a guarantor is a big commitment, and not one to be taken lightly.
Should the buyer not have the full 20% deposit, this path is a popular option to avoid Lenders Mortgage Insurance(LMI). Depending on the lender, some require the buyers to have a minimum 5% deposit, while others will allow the buyer to borrow up to 105% of the purchase price of the property. The guarantor doesn’t have to commit to the full term of the loan – they can choose to only secure part of the loan. Many only cover the buyer until they have paid back the 20% deposit minimum, after which time their responsibility ceases.
The process on how to buy a house with no deposit is not a straightforward one, as you will still need to produce evidence that you can budget and pay the loan back. Most lenders will look favourably on buyers that have at least 5% of a deposit saved.
Madd Loans owner George Samios has also noticed the growth in guarantor loans, particularly for first homeowners.
“We know that it’s getting harder to save for a house deposit in 2020, especially with our love of soy caramel lattes and avocado on toast. Jokes aside, there are many different options available for customers, and one of those options include guarantor loans. This loan enables you to buy a property and borrow 100% of the loan – PLUS the buying associated fees. Things like stamp duty, building and pest inspections, rates – these can all be put on top of the loan, so you can actually walk into a property with basically no deposit.”
Like all loans, there are of course associated criteria’s that need to be met first before a bank will issue you hundreds of thousands of dollars.
To be a guarantor, you’ll often have to have a large portion of your house paid off and show the title deeds of the guarantor’s own home. Thorough credit checks will be conducted, as well as consideration to your own income as well as the buyers. It’s worth noting that a guarantor’s chances of getting approved for an investment property down the track might be affected if they are committed to the buyer’s loan, and therefore potentially overstretched.
Interested In Guarantor Loan Options?
The multi-award-winning team at Madd Loans pride themselves on making mortgages fun. If you’re weighing up your options for a home loan, why not make an appointment with George and the team today to fast track the home of your dreams?