Getting a home loan with a 13% deposit
In this article, we’ll look at the FAQs that home buyers have when buying a home with a 13% deposit in Australia. We’ll look at how it works, who is eligible, additional costs on a 13% deposit mortgage, risks and how grants work. Need a quick chat to discuss your options? Speak to our team.
What is a 13% deposit home loan, and how does it work?
A 13% deposit home loan is a mortgage option where the borrower provides a deposit equivalent to 13% of the property’s purchase price. This means that the borrower needs to secure financing for the remaining 87% of the property’s value. In Australia, the standard deposit for a home loan is typically around 20%, which helps borrowers avoid paying Lenders Mortgage Insurance (LMI). However, deposits lower than 20%, such as 13%, are not uncommon, especially among first-time homebuyers who may find it challenging to save a larger amount. While a 13% deposit can make homeownership more accessible, it often requires the borrower to pay LMI, which protects the lender in case of default. This type of loan can be a viable option for those eager to enter the property market sooner.
Who is eligible for a 13% deposit home loan in Australia?
In Australia, eligibility for a 13% deposit home loan typically depends on several factors. Generally, applicants must be at least 18 years old and Australian citizens or permanent residents. Lenders will assess the applicant’s credit history, income stability, and employment status to ensure they can meet the loan repayments. A good credit score is often required, as it indicates financial responsibility. Additionally, the applicant must have saved at least 13% of the property’s purchase price as a deposit. Some lenders may also require mortgage insurance if the deposit is less than 20%. It’s important for potential borrowers to check with individual lenders, as specific eligibility criteria and terms can vary. Consulting with a mortgage broker can also provide tailored advice based on personal financial circumstances.
Are there additional costs associated with a 13% deposit home loan?
Yes, there are additional costs associated with a 13% deposit home loan. Besides the deposit, borrowers typically face costs such as lender’s mortgage insurance (LMI), which is often required when the deposit is less than 20%. For example, on a $500,000 home, a 13% deposit would be $65,000, leaving a loan amount of $435,000. Historically, LMI could cost around 1-2% of the loan amount, potentially adding $4,350 to $8,700. Other costs include application fees, valuation fees, and legal fees, which might total around $1,000 to $2,000. Additionally, borrowers should consider ongoing costs like interest, which can vary based on the loan term and interest rate. These costs can significantly impact the overall affordability of the loan.
What are the risks of a 13% deposit home loan?
A 13% deposit home loan carries several risks. Firstly, a lower deposit means a higher loan-to-value ratio, which can result in higher interest rates and increased monthly payments. This can strain your budget and make it harder to manage other financial obligations. Additionally, with less equity in the home, you are more vulnerable to market fluctuations; if property values decline, you could end up owing more than the home’s worth, known as negative equity. This situation can complicate refinancing or selling the property. Furthermore, lenders may require private mortgage insurance (PMI) to protect against default, adding to your overall costs. Lastly, a smaller deposit may indicate less financial stability, making it crucial to ensure you have a robust emergency fund to cover unexpected expenses or changes in income.
Can I combine a 13% deposit home loan with Australian government grants or schemes like the First Home Guarantee?
Yes, you can potentially combine a 13% deposit home loan with Australian government grants or schemes like the First Home Guarantee. The First Home Guarantee is designed to help eligible first-time home buyers purchase a home with a deposit as low as 5%, with the government acting as a guarantor for the remaining amount up to 20%. If you have a 13% deposit, you may still qualify for this scheme, which could reduce the need for lenders mortgage insurance (LMI) and make home ownership more affordable. However, eligibility criteria and specific lender requirements must be met, so it’s important to consult with your lender and review the terms of the government schemes to ensure compatibility with your home loan.
Need extra help?
If you’ve saved 13% as a deposit towards your home purchase and need advice on the best mortgage to suit your needs, speak to one of our friendly brokers.
