WHAT IF YOU DON'T HAVE A 20% HOME LOAN DEPOSIT?

Written by: Maria Papa

Saving for the deposit to buy a home is one of the most difficult hurdle of first home buyers. The ultimate goal is to save 20% of the property value. However, saving for that 20% deposit which most lenders typically require will take years.

What if you want to purchase your first home sooner?

One way to buy a home without having the full 20% deposit is by paying loan mortgage insurance (LMI). With LMI, you are able to borrow a high percentage of the purchase price. It also allows you to purchase a property with a smaller deposit.

So what is Loan Mortgage Insurance?

Lenders mortgage insurance (LMI) is one way to buy a home without having the 20% deposit which is typically required by most lenders and financial institutions. It is insurance that protects the bank if you are unable to meet your loan repayments and default on your loan.  Its a one-off fee that can be capitalised on top of your loan or paid upfront.

How is LMI calculated?

Loan mortgage insurance is calculated as a percentage of the loan amount. The higher the loan to value ratio, the more expensive the LMI. LMI varies from lender to lender so it is the mortgage broker’s job to find you the lender that charges the lowest LMI premium.  Since LMI is capaitalised on top of your loan, a lower LMI premium means lower loan repayments. 

How does LMI benefit you?

Loan mortgage insurance will help you achieve the dream of home ownership sooner. It allows the first home buyer to secure a loan for a home with a deposit as low as 5%. You don’t have to wait years to save the 20% deposit which ideally most lenders prefer.

Case Study

Anthony and Sonia are buying their first home and have found a property in Melbourne valued at $600,000. They have managed to save $50,000 for their deposit. The broker provided them with two options. They can wait for 2 more years and save more or they can purchase their home now using LMI. 

Its 2019 and the property market is experiencing a market downturn. Anthony & Sonia are eager to get their first home as soon as they can and take advantage of the falling house prices. After discussing the pros and cons of loan mortgage insurance with their broker, they decide not to wait to save the 20% deposit and to pay for LMI to buy their home today.

Originally published November 5, 2018 8:00:00 AM, updated 07 March 2019

Here’s a copy of The Complete Guide to First Home Buyers Manual for you download and read

Your full financial situation will need to be reviewed prior to acceptance of any offer or product.

 

MBM Mortgage Pty Ltd trading as Maverick Finance | ABN 28 149 301 084 | Credit Representative  403019 is authorised under Credit License 389328

This website provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.