Looking to Buy Your First Home? Why Not Consider a No Cash Deposit Loan?
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With house prices continually on the rise, the Great Australian Dream of owning one's own home can seem unachievable for many young first home seekers looking to buy a home in the current economic climate. Rising rental costs can also make it hard for any first home seekers paying rent to save enough money for a deposit to buy their first home.
If you're looking to buy your first home and are having trouble saving up enough money for the deposit, perhaps a no-deposit home loan is the right path for you. In this issue, we’ve outlined a few things you need to know about these types of home loans.
The current economic climate and property market means that many first home seekers are finding it increasingly hard to save the money required for a home loan deposit. In fact, many young people are being forced to put their home ownership dreams on hold until well into their 30's in order that they can gradually save up enough money for the deposit required to secure a home loan.
However, some lenders do offer clients the option of a no-deposit home loan where the requirement for genuine savings is replaced by the 'financial guarantee' of a guarantor. The guarantor is supported by a mortgage by the guarantor they own. These loans are not for everyone, but are worth reviewing to see if loans such as RAMS Fast Track suit your situation.
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So, what is a no cash deposit home loan?
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It's just that – a home loan for which you don't need to provide a cash deposit. This type of no-deposit home loan enables the borrower to borrow up to 100% of the purchase price of the property without impacting their eligibility to apply for the Government's First Home Owners Grant or any home buyer duty exemptions.
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How does it work?
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We've created a simple example to show you how a no cash deposit home loan works.
Andrew wants to buy a $350,000 property. Normally, he'd have to save a minimum 5% deposit (or $17,500) and show evidence of a savings history (over at least 12 months or more).
Andrew wants to borrow 80% of the value of the property, which means he has to pay mortgage insurance to cover him against this loaned amount should anything happen to him that prevents him meeting mortgage repayments.
On a loan based on 80% of $350,000 the mortgage insurance would be typically over $6,000.
In addition to this amount, Andrew would have to pay other fees such as legal costs and possibly stamp duty (in some States first home buyers receive permissions or exemptions depending on the price of the property).
This means that before he even gets to walk across the threshold of his new home, Andrew has to be able to pay over $25,000 in deposit and other fees.
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What do you need to know?
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When considering a home loan, it's important to research ALL your costs.
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- Find out what your legal fees will be – particularly if you are having a conveyancer handle your legal work.
- Find out what your utilities bills and your home and contents insurance will be on your new home, so that you know what to expect in ongoing costs.
- Work out what your mortgage repayments will be and establish if your budget – now and for the future – will enable you to pay your mortgage AND live the lifestyle you want to live.
- If you're considering a no cash deposit home loan, make sure you shop around. Find the home loan provider that offers a home loan that suits your financial and lifestyle needs.
- Do your budget - some lenders will charge a higher interest rate on a no cash deposit home loan, so make sure you can afford the extra interest in your repayments.
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How can RAMS help 'Fast Track' your home loan?
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RAMS has a no cash deposit home loan – RAMS Fast Track – which can help you get into the property market with ease.
With RAMS Fast Track, you can buy your first home sooner AND save on mortgage insurance by enlisting the help of a guarantor (a parent) to guarantee your loan.
A guarantor is someone who agrees to be responsible for the payment of someone else's debt should they default on payments.
Anyone over 18 years of age can be a guarantor. Normally, a guarantor is subject to credit search references and in most cases they must also provide evidence of a steady income before their role as guarantor is accepted.
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RAMS Fast Track enables you to borrow the full purchase price and save thousands of dollars in mortgage insurance costs at the same time.
Your guarantor simply needs to provide RAMS with a limited guarantee that is supported by a first registered mortgage over their own property. This needs to equate to the amount that you need to borrow which is over 80% of the overall property value.
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What does the RAMS Fast Track home loan offer you?
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- There’s no need to save for a cash deposit
- You can borrow up to 120%1of the full purchase price (105% if not including debt consolidation or renovations/improvements)2. You will save thousands of dollars on mortgage insurance costs
It's also important to note that once you have repaid enough of your loan to have achieved 20% equity in the property (or the property value has increased to provide you with that level of equity), you can request that the Guarantor be released (subject to RAMS other lending criteria applicable at the time)
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What are the key facts for your guarantor?
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- The guarantor is only liable for the agreed, guaranteed amount (not the full loan amount)
- They are not liable for any scheduled monthly repayments (-only for payments you have not made)
- They can apply to have the guarantee released at any time, subject to you, the borrower, satisfying RAMS lending criteria
- They can help you own your own home
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The guarantor needs to be prepared to provide a mortgage over their own property to secure their guarantee. The guarantor will need to obtain their own legal advice.
To find out more about no cash deposit home loans and to work out the best options for you, speak with a RAMS Consultant today – we can help you try and find the right home loan to get you into the property market.
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1 LVR of 120% of purchase price is only applicable where the loan purpose includes both consolidation of other debts and renovations or home improvements.
2 Funds required for renovations/ home improvements must be evidenced by a fixed contract. For loans up to $1.5 million.
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