How To Get Into The Property Market Without a 20% Deposit
A recent survey revealed that 65 per cent of Australians think owning a home isn’t an option for young people.
There are many reasons for this line of thinking, including the fact that many first-time buyers can’t afford to save the 20 per cent deposit most lenders traditionally require.
If this is you, don’t give up on homeownership just yet! There are many ways to buy a property without a 20 per cent deposit.
Below are ten suggestions to help you get into the property market and buy your first home even if you don’t have that 20 per cent saved.
1. Look into Lenders' Mortgage Insurance
Contrary to popular belief, you can qualify for a home loan without putting down a 20 per cent deposit. The catch is that you’ll need to pay for lenders’ mortgage insurance or LMI.
LMI protects the bank if you cannot pay back the money you’ve borrowed to purchase a home.
The cost of LMI depends on the amount of money you’ve saved. The more you’ve saved toward a deposit, the lower the price of your LMI and vice versa.
2. Utilise the First Home Guarantee Scheme
The Australian government has many schemes designed to help first-time home buyers, including the First Home Guarantee Scheme.
This scheme requires you to save at least a five per cent deposit. If you’ve saved this amount, the National Housing Finance and Investment Corporation or NHFIC guarantees your loan, saving you from paying LMI.
This program is available to 35,000 eligible first-time home buyers. Individuals must earn less than $125, and couples must earn less than $200,000 to apply.
3. Utilise the Family Home Guarantee Scheme
Another option (also guaranteed by the NHFIC) is the Family Home Guarantee scheme.
If you’re a single parent with one or more dependent children, you can buy a home with a deposit of just two per cent. The NHFIC then guarantees part of the loan.
There are 5,000 open spots for this program, and you can qualify as a first-time home buyer or a previous owner who doesn’t currently own a home. Your income must also fall below the $125,000 limit.
4. Utilise the First Home Super Saver Scheme
The First Home Super Saver Scheme is a savings plan that helps you save money for your first home (as long as you plan to occupy it for at least six months during your first year of ownership).
With this plan, you can make pre-tax and after-tax contributions into a super fund. Then, you can withdraw up to $15,000 from a given year or an all-time total of $50,000.
If you take this approach, you must apply for and receive a determination from the federal government before you sign a contract for your first home purchase.
5. Apply for a First Home Owners Grant
Various Australian states and territories offer grants (money that you don’t have to back) for first-time home buyers.
The grant amount varies based on your location. For example, Queenslanders can receive a grant of $10,000 for a new home valued at up to $750,000, provided they satisfy certain criteria.
6. Ask for Gift Funds
If a family member or loved one is willing to contribute to your deposit, you can save less than 20 per cent and still qualify for a mortgage.
However, remember that those gift contributions are considered non-genuine savings. You will likely need to provide proof that you have savings of your own to be approved for a loan.
7. Ask Someone to Be Your Loan Guarantor
You might not have any family members or loved ones who can give you money for a deposit, but they might be willing to be loan guarantors.
Imagine you’ve saved enough to cover ten per cent of a deposit. A guarantor can use the equity in their home to cover the leftover 10 per cent.
Guarantors don’t actually have to hand over a specific amount of money at closing. However, they do promise that they’ll use their money to pay back your loan if you default on it.
8. Go in with a Friend
Do you have a trusted friend or relative who’s also struggling to save for a 20 per cent deposit? Perhaps you can pool your resources and buy a property together.
Of course, unique challenges come with buying a house with someone who’s not a spouse (hello, roommate drama). However, this can still be a viable option.
9. Consider Rentvesting
Let’s say you can’t afford to buy a city property but don’t want to leave the city. In this case, rentvesting could be a good choice.
Rentvesting involves buying an affordable property in a suburb or rural area. Even though you own the property, you let someone else pay rent to live there while you continue renting in the city.
Rentvesting lets you live where you want and enjoy the benefits of homeownership. It also requires you to pay rent and a mortgage, making it one of the most expensive options on this list.
10. Apply for a Professional Home Loan
Let’s say you have a secure, high-paying job but haven’t saved much money (perhaps because you’re paying off student debt like 2.9 million other Australians). If this situation sounds familiar, you might qualify for a professional home loan.
These loans are available to those in high-income professions (physicians, dentists, accountants, etc.) and come with special discounts and fee waivers. You may even qualify for a home loan without paying LMI.
Are You Ready to Get into the Property Market?
If you’ve been thinking homeownership is impossible because you haven’t saved enough for a 20 per cent deposit, think again! These tips are all great options to help you get into your new home sooner.
The Cairns property market, in particular, boasts a range of properties to suit all needs and budgets, so you are sure to find a quality property that fits your needs.
If you’re unsure which option is the best fit for you, or if you’re ready to start searching for your first property, we’re here to help at Champions in Real Estate. Get in touch today to take the next step on your property journey!
