With the recent decree from our governing bank, dissuading lenders from granting 100 per cent home loans, two avenues are still open that enable access to this financial product. The first option is for your parents to act as guarantor; this will see them needing to provide security, in the form of their own home. The second, if you already own a home (or have enough equity) is to utilise that amount as security on this option.
Commonly known as the ‘No Deposit Home Loan’, this facility is available, with the following features:
- No need to save for a deposit
- Some lenders will let you borrow up to 120% of the purchase price
- This amount (120%) can include your up-front costs such as conveyancing; stamp duty; home improvements; debt consolidation etc.
- Saves you thousands of dollars in mortgage insurance
- Fixed rates can be negotiated
- Re-draw facilities can be built into the agreement (applies to Principal + Interest home loans only)
- Some lenders allow for investment property purchase.
However, there are caveats and down-sides to no deposit home loans:
- The lender can, at its discretion, release the guarantor
- A property must be selected within a certain post code range, as an over-supply of, for instance, apartments, in one area, can make it less attractive to the lender
- Interest rates for these types of home loans are usually higher
- Repayment dollar amounts will be higher, as you are borrowing a greater amount.
With the maxim, “thrift is wisdom”, it goes without saying that home ownership costs do not stop with the final exchange of contracts. You should always budget for the usual ongoing costs of Water Rates and Council Rates – it is wise to search your local council’s websites for the costs of these service charges, before you purchase.
House or Apartment
If your purchase of choice is a house, you will be up for the usual fees, such as conveyancing and stamp duty, like all would-be home owners.
However, should close proximity to others not be an issue, you may choose an apartment. These usually sell for less than free-standing houses. Nevertheless, the following is where a lot of buyers wake up in shock:
Body Corporate fees – these can range from a mere $500 per quarter to many thousands of dollars per quarter. It depends where you purchase and how much maintenance is needed on your block. Don’t be caught out by the neat minimalist 1990’s décor of the foyer. If the Body Corporate vote on drastic improvements and want to re-tile the entrance in marble, you will be up for a percentage of that cost. Good real estate agents will always have a schedule of fees at hand for you to glance over. It is also a good idea to obtain a copy of the minutes of the last few meetings, from the managing agent, as, often, there are tell-tale signs that dollars need to be shed with building improvements, such as re-carpeting of foyers and roof maintenance, just to name a few.
High-rise apartment blocks – If you are looking at a unit in a multi storey apartment block that is over four floors, it will most likely be equipped with an elevator. Check to see when this piece of core equipment needs maintenance, or at the very worst, replacing, as, costs relating to this can spiral upward.
Building defects – Legal issues ensuing with the builder, relating to common areas on other floors, doesn’t mean that the layers of concrete shield you from these costs. Having recently received a bill for legal fees where building defects are being argued over, a little stress has been added to my life, which has seen much commiseration with the other eighty owners.
These scenarios may not necessarily see you needing to take a packed lunch to work every day, but should be factored in anyway.
Example of a no deposit home loan
While there are many examples of no deposit home loans on the market, take the RAMS No Deposit Home Loan for example, you can either lend the full purchase sum or (if it is lower) just the valuation, and even save money on your home loan insurance costs by doing so.
What does it all mean?
Being only a few tips, when applying for a ‘No Deposit Home Loan’, it is wise to meet with a financial professional, before embarking on any home loan, whilst always remembering the old adage: Buyer beware.