Moving into your first home is a major milestone. And if you’ve been renting, living with family or sharing with housemates, chances are you’ve been thinking about taking this next step for some time now. So what’s stopping you? Fear of buying the wrong property? Fear of choosing the right builder? Fear of a bubble or crash?
Buying property is a huge investment, both emotionally and financially, and in most cases first time home buyers are unable to save the hefty deposits required by the big banks. But don’t let this minor hurdle trip you up - there are still ways to get into your first home sooner than you ever thought possible, thanks to first home buyers finance incentives, such as low deposit home loans.
What is a low deposit home loan?
A low deposit home loan, also known as a high loan to value ratio (LVR), is offered by some banks and lenders to individuals who want to buy their own property but who only have a 5-15% deposit. Ideal for first time buyers, this type of loan gives borrowers the chance to enter the real estate market quickly with below the minimum amount of deposit needed.
With a deposit amounting to 5% of the property value, this means it will only take $25,000 against the value of $500,000, for example, to apply for a loan and acquire a property. This gives first time buyers more ability to save up on repayments and other fees, while cutting down the time it takes to begin taking the steps to own a new home.
Low deposit options for first time buyers
Recently, no deposit home loans have been withdrawn from the market, which means there are no lenders in Australia that currently offer home buyers a loan with $0 genuine savings. But just because you don’t have as much saved doesn’t mean you can’t get into a home of your own anytime soon. In fact, there are still several alternatives you can choose from when applying for finance.
Guarantor home loans are now the only way to borrow between 100% and 110% of the purchase price of a property. As a first time home buyer, you’re able to borrow 105% of the property value using the guarantor loan. Your guarantor will provide a guarantee for your home loan which is secured on their property. In most cases, this is your parents assisting you to buy a home and get you into the property market sooner.
This loan has become very popular in recent years as they cost less than standard home loans, allow you to buy without a deposit and some lenders will now allow you to limit the size of the guarantee. However, even though guarantor loans allow you to borrow 100% of the purchase price, many lenders still require you to have 5% of the purchase price in genuine savings.
Keystart home loan
If you can’t get a guarantor to support your loan, you may be eligible for a keystart home loan thanks to a State Government initiative to help people buy their own homes through low deposit loans and shared equity schemes. A variable interest rate loan which can be used to get you into your first new home, the keystart low deposit home loan is available to both first and non-first home buyers across WA.
First Home Owners Grant
There are also some great low deposit home loans available at the moment that use your First Home Owners Grant or gifted funds. This is a pretty great option, especially because most lenders in WA require a minimum 5% deposit. Right now, the First Home Owners Grant is $10,000 in WA and is a great way to get you started on the path to homeownership.
SmoothStart - Perth based first home builders, work with a network of experienced first home buyer finance brokers who are available to walk you through every step on the path to homeownership, starting by asking you a few simple questions to help find the low deposit finance options suitable for your situation. Get in touch today and be sure to follow SmoothStart on Facebook @smoothstartwa.