How much deposit?
As a first home buyer it’s helpful to know how much you need to save for a home loan deposit. Minimum deposits vary between lenders and depend on the loan product you choose.
As a general rule, if you are an owner occupier you will require a minimum 5% of the purchase price as a deposit. If you are an investor, you will ideally require 5-10% of the purchase price.
Low deposit home loans can be great for first home buyers who haven’t been able to save a large deposit for their home loan due to high rental payments.
Family guarantee/pledge loans are another great way to help you with your home loan deposit, if you have family member willing to help as a limited liability guarantor – then Family Equity loans may be right for you.
Low Deposit Home Loans
Low deposit home loans, where a buyer needs a deposit of only 5-10 per cent (plus any fees or costs), may be available depending on your circumstances. Some lenders may even waive the requirement to show genuine savings, instead allowing you to use a combination of savings, gifts, inheritances and the first home buyer grants offered by your State or Federal governments. Low deposit home loans are not available from all lenders, or for all situations.
Put a Budget in Place
Putting a budget in place can assist you to bring forward your purchase plans and stop renting sooner, see our free PDF the First Home Buyers guide. A good mortgage broker or financial planner can assist you to tailor a budget to your needs that enables you to save without taking away all of life’s little pleasures. Alternatively, you can talk to a finance specialist to help get you started on your savings plan.
Family Equity Loans
Family guarantee/pledge can be a good way to stop renting and buy now, if you have a good income but lack the deposit required by most lenders. With a family guarantee/pledge loan, a family member – usually your parents – assists you with the purchase of your home either by providing security using the equity in their home to cover the deposit amount, or by guaranteeing a portion of your ongoing home loan repayments.
Rent to Buy
Rent to buy is cited as an alternative method of beginning the property purchasing process in comparison to sourcing a traditional home loan from a bank or lender. Rent to buy agreements typically combines a standard rental/lease agreement with an additional option to purchase the property after a specific timeframe. Rent to buy is not the same as purchasing using a lease purchase or through vendor financing.
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Be Wary of Rent to Buy Schemes
There are a number of things to be wary of if you are considering a rent to buy scheme, including:
- it is difficult to gauge whether a vendor is genuine, and there are few, if any, safeguards for buyers
- you will almost certainly pay significantly above market rates for the property
- the interest terms will be 1-2 per cent higher than a standard home loan
- you do NOT own the property until the full purchase price is paid
- as a first home buyer, you are not eligible for any grants and concessions until the full purchase price is paid and the title of the property is transferred to you
- even after the option period is over, you may not qualify for a home loan and stand to lose not only the property, but all the option fees you have paid
- you have limited legal rights if something goes wrong
The safest path you can take is to work with your finance specialist on ways to get you into a position to make use of a home loan sourced through a reputable and secure bank or lender. Your mortgage broker can help you to determine your options and develop a plan to qualify for the finance you need.
If you do decide to use a rent to buy agreement, it is essential that you consult your solicitor for assistance and advice, particularly when reviewing the contracts.
Your state Office of Fair Trading (or equivalent) may also have some useful information on rent to buy, including any notifications of false or misleading schemes, contact your state Department of Fair Trading.
For more information about how you can stop renting and buy now complete your home loan pre-approval form now.
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