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Buying a house can be a complicated process, but for a lot of us the hardest part is actually saving the initial deposit (ideally 20% of the property’s value). Compared to even twenty years ago, the percentage of income needed is much higher, meaning even the most diligent savers find it difficult to get started. So what do you do if you really want to step onto the property ladder but just can’t accumulate enough deposit? The good news is that you still have options, but the pros and cons of each need to be carefully considered.
1. Low deposit home loans
There are some lenders who will lend 95% of the purchase price. These loans often have higher interest rates and will also involve the additional cost of lender’s mortgage insurance. First home buyers also have the benefit of the First Home Owners Grant and reduced rates of stamp duty.
2. Family Help
This may come in a few forms:
• The least risky, but possibly the most challenging for some aspiring home-owners, is moving back to Mum and Dad’s:
a good option to fast-track the savings!
• Guarantor Home Loans - This is where a guarantor (usually a family member) agrees to take responsibility for a portion of the mortgage payment if the borrower defaults in the future. They offer equity in an existing property as security for the loan. While this is incredibly useful for applicants who are struggling to save their deposit, the guarantor is exposed to risk (both their property and their credit rating) that may affect their finances in the future, It’s very important that all parties have a thorough understanding of their liability.
• Family Loan - A family member may gift you an amount of money to put towards the purchase. If you can evidence regular rental payments, a lender may accept them as regular savings.