Owning your very own home is perhaps the Australian dream however 20-30 years olds often feel that that the barrier to entry to the job market is simply too high.
While record-low interest rates are an enormous help with applying for a mortgage, the same can’t be said for helping build a healthy savings account. What can assist is knowing that a 20% deposit is not your only option for securing a home loan. Here we look at what other options are available to help millennials reach that great dream.
Lenders Mortgage Insurance (LMI) can help you get into the property market sooner with a deposit as low as 5% of the purchase price. Because LMI allows for a smaller deposit and a larger loan ratio, it gives you the means to buy the property you want rather than missing out.
The cost of LMI varies, depending on the size of your deposit and the value of the property. LMI is paid upon funding of your loan and added to the total loan amount. It becomes payable throughout the loan period and therefore incurs interest.
If you have a family member willing to act as a guarantor on your home loan, you can potentially borrow up to 100% of the purchase price using a family guarantee loan. This solution avoids the need for you to pay Lender’s Mortgage Insurance.
A family guarantee loan allows the equity in your guarantor’s property to be used as security on a home loan. The security on the new loan can be split, and the guarantee limited to a portion, which is then added to your deposit amount.
Lower your home loan deposit target by rentvesting: buying a cheaper property in an affordable suburb but continuing as a renter in your current location. It provides the flexibility to keep living in an area you’ve grown accustomed to while using rental income to pay off your investment property.
To get the most out of rentvesting, approach the purchase of your investment property with a clear strategy. You want your investment to deliver positive returns, so look for suburbs hat have good long-term growth prospects and plenty of tenant appeal.