A Step-by-Step Guide to Securing a 95% Home Loan
Most home buyers have probably heard about needing a 20% deposit to buy a house or property. But that is not necessarily true as there are other types of loan options that can be taken advantage of.
Did you know that most lenders now allow you to borrow up to 95% of a property’s value? This means that you only need a 5% deposit which can also include the First Homeowners Grant.
95% home loans are ideal for those who want to secure a property quickly as they can take out a loan and buy a property faster rather than having to wait to save for the usual 20% deposit.
High loan-to-value ratio (LVR) loans of 95% have seen the highest growth in percentage terms out of any ratios this year, up from 1.5% of total loan books to 1.9% in a year. This tells us that although banks may have tightened their lending criteria because of the current pandemic, it’s more than possible to secure a low-deposit home loan today. In addition, the current market conditions are ripe- with all-time low interest rates, less competition, and access to the First Home Loan Deposit Scheme for first-time buyers.
In this article, we’ll look into the steps you need to take to secure a 95% home loan so you can jumpstart your FY21 property goals.
So What Is a 95% Home Loan?
95% home loans are a type of low-deposit loan available in Australia, that allows buyers to borrow up to 95% of the total value of the property.
To be eligible to apply for a 95% home loan, you’ll need to:
- Be at least 18 years old
- Be a permanent Australian resident or citizen
- Have a good credit history
- Have enough savings or assets for the deposit
- Have a stable income and be able to show proof of your employment history
- Deposit of at least 5% – 10% of the property value and that can include the first home owners grant (FHOG).
For the most part, first home buyers will need to contribute around 5% to 10% of the purchase price as a deposit. This amount may vary depending on the first home owners grant and stamp duty concessions available in your state.
It’s worth noting that from January 2020, eligible first home buyers with a 5% deposit can get their LMI waived under the First Home Loan Deposit Scheme.
Second home buyers and investors will usually need a 10% deposit, half of which will cover the deposit on the property and the other half will cover stamp duty, conveyancing fees and other minor costs.
If you’re looking to only deposit 5% on a property you’re interested in, note that it may be challenging to get a mortgage with a high loan to value ratio (LVR). But with the right planning and preparation, we can help you make this possible.
How Much LMI Will I Need to Pay?
Lender’s Mortgage Insurance (LMI) is an insurance policy that protects your bank if you are unable to pay off your loan and enter into default. While the bank takes out the policy, borrowers will need to pay the premium.
A lender will require you to pay for LMI if your home loan deposit is less than 20% of the total value of your property – most of the time this cost can be capitalised onto the loan amount so if your loan-to-value ratio (LVR) is more than 80%. This can put another dent in your pocket and is something worth considering.
The cost of LMI on a 95% home loan may differ based on the following:
- Mortgage insurer
- The actual loan amount
- The deposit amount
It’s important for you to assess your current savings and consider the amount of LMI you may be asked to pay when deciding to secure your 95% home loan.
Step-by-Step: Securing a 95% home loan
If you are set on securing a 95% home loan, here are the steps and documents you’ll need to prepare beforehand.
- Secure a copy of your credit report
- Pay off debts as much as you can and cut down on unnecessary financial commitments to increase your credit standing.
- Make sure to have at least 5% of the property’s purchase price ready in genuine savings, as proof of your ability to save.
- Have a good savings history, and you may need to provide evidence of this.
- Find the right partner like Shore Financial to give you the guidance and advice you need to get the best rate.
Take note that lenders are more likely to decline an application based on a bad credit history, poor spending habits, job stability, and not having the right documents ready on the application.
Getting all these in order prior to securing your 95% home loan will increase your chances of getting approved.
If you’re keen to buy property and take out a home loan, it’s beneficial to be armed with the right information to understand everything about 95% home loans and what you need to increase your chances of getting approved.
The circumstances for your home loan might differ according to your deposit amount, your financial standing, and the final offer. It’s always smart to be proactive and do your research beforehand, so you can find out everything you need to know about the property itself and the type of home loan you wish to get before making a decision.
If you’re interested in securing a 95% home loan and have queries you need answered beforehand, speak to Shore Financial for strategic advice, so you can make informed decisions in buying your first home or investing in property for the family.
Call Shore Financial today.