What is a low deposit home loan?
Low deposit home loans are one of the many types of loan products available to the public wishing to buy or construct a new home. Today there are lots of home loan products being advertised by different financial organisations including bank and non-bank finance institutions. There are many people who do not have sufficient funds for a 20% deposit for the purchase of a property. Low deposit home loans have been specifically designed for persons having low to moderate income enabling the dream of home ownership by lending up to 99% of the property value.
There are some borrowing institutions which will allow borrowings of up to 100% of the property value. These types of loans are called no deposit home loans. In such cases, there is no need for the borrower to have a deposit.
A number of institutions have a requirement of 3% savings deposit (meaning the lender will lend 97%) for the granting a low deposit home loan. Savings means that there is a track record of the buyer contributing to a savings schedule. This is very important to the lender as it ensures that the buyer is committed to repaying the loan. There are some financial institutions which offer low deposit home loans to people who have high disposable incomes and can afford the mortgage repayments without any worries. Borrowers must take out mortgage insurance if they are borrowing more than 80% of the property value.
Eligibility & documentation
Before being approved for a low deposit home loan, there are certain eligibility factors which need to be fulfilled. Much documentation is required and lenders in most cases will require:
- income verification
- savings history
- previous tax returns
- bank statements history
- loan application form
- documents pertaining to the property being bought
Approval of low deposit home loans
Financial institutions will take in to account all your earnings (salary, tax benefits plus others) when assessing your income. It is very important to have a good credit history with no defaults or bankruptcies. In most of the cases, approval becomes easier and quicker provided the documents pertaining to the loan are all in order.
Benefits of low deposit home loans
There are lots of benefits which one gets by attaining a low deposit home loan. Many financial institutions offer benefits like low standard variable rates, no monthly fees, no early repayment charges after a certain period. There are certain financial institutions which offer a switch facility where one can switch from a variable interest rate to fixed interest rate. There are also lenders who offer higher periods of repayment (e.g. weekly or fortnightly). Higher periods of repayment would mean less monthly instalments meaning less repayments in the long run. By law all borrowers must receive statements every six months detailing all the transactions of the loan in question.
Low deposit home loans provides a great opportunity of home ownership and could be one of the easiest solutions to owning your home.