How much deposit do you need?
The total amount of your deposit will affect the types of loans and lenders that are available to you but with a little help from a Loan Market mortgage broker, securing a home or investment loan at a competitive interest rate may be easier than you think.
There are many ways of Covering Your Deposit
There are many ways to cover your home loan deposit. Outlined below are a number of options available for both saving a deposit and structuring your home loan. Your Loan Market mortgage broker will outline the option/s that are in your best interest, call us on 0508 722 205 (+64 9 377 7347) or fill in the form on this page.
You Will Have Fees and Charges to Pay
Along with your deposit, you will also have to pay the standard fees and charges associated with your home purchase. If you don’t have all of the additional funds for fees, there are ways to also cover some or all of the fees and your mortgage broker should be able to show you your options when you are sorting out your home loan.
genuine savings
Many lenders have introduced the requirement for borrowers to put at least 5% of genuine savings towards their deposit. The need to show genuine savings makes it more important than ever to work out a budget prior to beginning the search for a property, and sticking to it. Use our Budget Planner for assistance in working out a realistic budget.
Kiwisaver
As part of the KiwiSaver initiative, a Deposit Subsidy has been established to assist you to save for a home deposit. The first subsidies will be paid out in 2010 to people who started KiwiSaver contributions in 2007. Go to our Kiwisaver page or talk to your mortgage broker about how Kiwisaver works.
Limited Guarantor Loans – Family Pledge, Equity Guarantee
Limited guarantor loans, also known as ‘family pledge’ loans or equity guarantee loans, allow an immediate family member to ‘pledge’ assistance to the borrower, either as a guarantor providing support through repayment assistance or as a guarantor providing additional security. Family pledge is typically a feature as distinct from a loan, and can be applied to most loan types once approved.
They help the borrower to purchase when they otherwise may not have been able to, as well as reduce or remove the requirement to pay Lenders’ Mortgage Insurance. This is particularly useful if you are either a first home buyer or someone who is trying to re-establish yourself after a life event, such as a divorce.
A good limited guarantor loan will allow the guarantor to set the amount they are guaranteeing, in effect limiting their exposure to loss. It’s important to note however that it can be difficult for the guarantor to remove themselves from the loan as the main borrower becomes able to service the loan themselves. You should seek legal advice prior to entering into a guarantor arrangement.
Monetary gifts
There is also the option of using a monetary gift to assist you with your deposit. This can help you bring the loan you require down to a manageable level, and reduce or remove the requirement for Lenders’ Mortgage Insurance. You may need to supply your lender with a gift certificate signed by the person gifting you the money, stating that it is a gift and is not repayable.
Deposit Bonds
Deposit bonds are a cost- and time-efficient alternative to a cash deposit if your cash is tied up or you are unwilling to use it. It is a guarantee to the vendor equal to the amount of the deposit required. Deposit bonds can help you to improve cash flow by allowing you to retain the cash for the period your deposit bond covers – generally anywhere up to about 4 years.
How Much Can I Borrow
How much you can borrow will depend on many different factors such as your lifestyle and financial situation. There are a number of factors taken into account when determining your borrowing capacity. These include, but are not limited to, income, credit history, income history and employment history. For a guide to how much you can borrow check out our home loan calculators but remember, it is important to have your borrowing capacity assessed indivudally by your Loan Market mortgage broker before hitting the open home circuit.
How to Avoid Paying LMI (Lender’s Mortgage Insurance)
When you get your home loan, if you want to completely avoid paying Lender’s Mortgage Insurance (LMI), you will need to have a 20% deposit. So while you can get a home loan with a small deposit. it is important that you know how to structure your home loan deposit, fees and charges to your best advantage.
How Lenders Mortgage Insurance (LMI) Works
LMI is usually required when the Loan to Value Ratio (the value of the loan amount opposed to the value of the property) is greater than 80%. Some lenders may also waive this cost for loans with an LMI between 75 and 80%. LMI protects the lender from any losses that may occur as a result of a default by the borrower (i.e. the borrower forgoes repayments). LMI does not offer any protection to the borrower.Dependent on the lender and the risk, LMI can cost up to 3% of the amount you are borrowing.
get the Home Loan Deposit you need
If you have a savings goal or home in sight, it pays to talk to a Loan Market mortgage broker who can help you understand what your home loan options are as well as set up your savings scheme with the right bank for you. Or call at any time on 0508 722 205 (+64 9 377 7347).
