With interest rates at historic lows right now, many first home buyers are trying to secure their first property. As a first home buyer, you may have heard you need a 10 or 20 percent deposit for a mortgage, however, there are many lending options at the moment. Let us walk you through your options that might get you into your first home sooner. Please read on to learn about 2 percent deposit home loans and the Australian Government’s First Home Loan Deposit Scheme.
Are 2% deposit home loans possible?
With some lenders, yes! A 2 percent deposit home loan is possible. There is a huge range of home loan products available to you as a home buyer. Experienced mortgage brokers deal with mortgage options every day and are experts in matching the best finance option to your personal situation.
Our Queensland mortgage brokers have access to a range of lenders and there are options for 95% to 98% home loans meaning you need as little as a 2 percent deposit to chat with us to start your mortgage finance process. If you have enough money saved, we can help you find the right product for you and you’ll be on your way to finding your first home. Mortgage brokers are legally required to work in your best interests – we will always take the time needed to understand your individual circumstances.
How does the government’s 5% deposit scheme work?
Recently, it was announced in the federal budget [URL: https://budget.gov.au/] there are 10,000 more places in its First Home Loan Deposit Scheme available from 1 July 2021 to 30 June 2022. These new places in the 5 percent deposit scheme supports first home buyers who build or buy a newly constructed home to buy with as little as a 5 percent deposit home loan. There is another 10,000 places available for first home buyers looking to purchase an existing property.
What is the 5 percent deposit scheme eligibility criteria?
If you meet the eligibility criteria for the 5 percent deposit scheme, you will avoid needing lenders mortgage insurance to take out a mortgage. Usually, if you have less than a 20 percent deposit, your lender would require you to pay this insurance that the lender takes out to cover the risk of you being unable to repay the mortgage. In this government-backed scheme, the federal government will underwrite the loan so you do not have to pay lenders mortgage insurance – also referred to as LMI.
If you take out a loan under the scheme, the government will serve as your guarantor on the loan and you will receive this support until your loan’s balance is reduced to below 80% of the value of your property at purchase. Importantly, if you refinance your loan, sell your home or move out, you will no longer be eligible for support.
The eligibility requirements for the 5 percent deposit scheme include:
- Income tests will be applied which include singles with a taxable income less than $125,000, couples less than $200,000 for the previous financial year
- Couples are only allowed to apply for a joint application if they are married or in a de-facto relationship. Other joint applicants such as parent/child, siblings, friends etc. are not eligible for this scheme
- You must provide proof you have never owned or held interest in property in Australia before.
- All applicants must be Australian citizens, aged 18 years or over
- The property you are buying must be owner occupied, which means you need to move into the property within six months of owning your home and continue to live in that property for so long as your home loan has a guarantee under the Scheme
- Loans will only be underwritten for “entry properties” (excluding high-value properties), which will be determined by the government through price caps relative to the property’s local market.
Are there any risks with low deposit home loans?
When you take out a mortgage with a smaller deposit, there is some risk. The reason for this is the amount you have owing on your mortgage is larger but still needs to be repaid within the maximum loan term. The other risk with a smaller deposit is the total interest you may be required to pay over the course of your loan. Because your deposit is low, the amount of interest calculated will be more than if you started your mortgage with a larger deposit.
I have saved enough for at least a 2 percent deposit home loan – what do I do next?
Once you have managed to save enough money for either a home loan with 2 percent deposit, or 5 percent deposit, you can start the pre-approval process. An experienced mortgage broker can walk you through the process step by step to achieve pre-approval and then settle on your loan when you find the right property.
Talk to us first and you’ll be in the best position to know what lending options are available to you. Even if you haven’t saved enough yet, we can help you with any question you have about deposits and home loans! We work to give you the best option for your financial situation and your property goals.
Ready to chat about 2 percent deposit home loan options or have any questions about home loan deposits? Call us today and talk to a Coronis Finance mortgage specialist. You can also book online for a time to speak to one of our mortgage brokers.