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No Deposit Home Loans - Information You Need To Know

April 21, 2012 | Comments: 0 | Views: 188

Everyone who has applied for a mortgage will tell you there is always inevitable question of 'what can I afford?'. This of course is dependent upon the purchase price of the property and how much a lender will allow you to borrow. The amount a potential new homeowner can borrow from a lender for a home loan is called the "Loan to Value Ratio" (LVR) and is expressed as a percentage of the property's value.

LVR is a major emphasis for lenders in assessing your loan and can limit the number of lenders willing to finance your purchase and may affect the interest rate and other costs. The maximum LVR for the majority of borrowers is generally 95% and this amount has requirements for savings that some individuals will find difficult to fulfil. However, these requirements become less stringent as the LVR decreases and may be waived by some lenders for loans smaller than 80% LVR.

Do 100% loans still exist in Australia? Can you buy a home with no deposit and no savings? The answer is yes but they are far less common. Faced with the effect of the Global Financial Crisis, Australian lenders have introduced requirements for "genuine" savings for loan applicants. Without savings you can borrow 100% of home value with the intervention of a guarantor.

If your parent(s) are willing to guarantee your loan with their own property the additional security is sufficient for some lenders to allow you to borrow 100% of the property value and waive the savings requirement. If the guarantor is still paying off a loan, a second mortgage provided by the lender may be accepted as security.

With some lenders as much as 105% of the purchase price can be borrowed to consolidate debts. Although in theory a lender can accept anyone as a guarantor, most prefer parental guarantees because of the close relationship to the buyer. However, some lenders will consider guarantees from other family members.

For your guarantor's protection, the amount guaranteed should represent only a portion of the total loan amount. This limited guarantee is often defined as the loan amount divided by 0.8, less the value of the property you are buying. This value will determine the value of the guarantor's property needed to qualify. A mortgage broker can assist in this calculation.

An additional benefit of a guaranteed loan is that you may avoid the payment of Lenders Mortgage Insurance (LMI). This is usually required by lenders as a once off insurance premium or fee applicable to high risk (high LVR) loans. Alternatively, a parental gift of enough to lower your LVR may be an option that will prevent the need for proof of savings and possibly eliminate the LMI.

Generally over 80% LVR loans will require some proof of "genuine" savings. This requirement is usually 5% of the purchase price, held or saved over a period of three months. As the LVR increases the lenders requirements for these savings will increase in scrutiny, if not amount. What represents "genuine savings" is a complicated issue. A mortgage broker can explain the possibilities. If borrowing less than 80% of the property value the requirement for savings is often waived.

There are a few no savings, no deposit home loans available that you can pursue. For example you might obtain a gift from your parents which you can place in the bank for a few months to fulfill a proof of savings requirement. If you have been renting for a year, some lenders may allow you to borrow up to a 95% LVR without a proven history of savings as well.

There are also more expensive and creative methods of "Vendor finance" for people who have only 5% or less deposit but credit history problems and cannot apply for a standard loan. These situations should be discussed with a mortgage broker.

About the Author

Otto is a Mortgage Broker that has specialised in bank lending policies such as those for no deposit home loans for over 8 years. His company the Home Loan Experts is now one of the top home loan broking firms in Australia.

Source: EzineArticles
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