Getting a home loan with a 15% deposit
In this article, we’ll look at the FAQs that home buyers have when buying a home with a 15% deposit in Australia. We’ll look at how it works, who is eligible, additional costs on a 15% deposit mortgage, risks and how grants work. Need a quick chat to discuss your options? Speak to our team.
What is a 15% deposit home loan, and how does it work?
A 15% deposit home loan requires the borrower to pay 15% of the property’s purchase price upfront, with the remaining 85% financed by the lender. This type of loan is less common than the standard 20% deposit home loan in Australia, where a 20% deposit is typically preferred to avoid paying Lenders Mortgage Insurance (LMI). However, a 15% deposit can still be an attractive option for those who have saved a substantial amount but not quite the full 20%. Borrowers with a 15% deposit may need to pay LMI, which protects the lender in case of default. This option can help buyers enter the property market sooner, though it may result in higher monthly repayments and additional costs due to LMI.
Who is eligible for a 15% deposit home loan in Australia?
In Australia, a 15% deposit home loan is typically available to borrowers who can provide a deposit of at least 15% of the property’s purchase price. Eligibility criteria may vary between lenders, but generally, applicants need to demonstrate a stable income, a good credit history, and the ability to meet the lender’s serviceability requirements. Some lenders may also require mortgage insurance if the deposit is less than 20%. First-time homebuyers, investors, and those refinancing an existing loan may be eligible, depending on the lender’s specific terms and conditions. It’s important for potential borrowers to compare different lenders and loan products to find the best fit for their financial situation. Consulting with a mortgage broker or financial advisor can also help in understanding the eligibility requirements and securing a suitable home loan.
Are there additional costs associated with a 15% deposit home loan?
Yes, there are additional costs associated with a 15% 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 15% deposit would be $75,000, leaving a loan amount of $425,000. Historically, LMI could cost around 1-2% of the loan amount, adding approximately $4,250 to $8,500. Other costs include application fees, valuation fees, and legal fees, which might total around $1,000 to $2,000. Therefore, the borrower should budget for these additional expenses, which could cumulatively add several thousand dollars to the upfront costs of securing the home loan.
What are the risks of a 15% deposit home loan?
A 15% deposit home loan carries several risks. Firstly, with a smaller deposit, you borrow more, leading to higher monthly repayments and increased interest over the loan’s life. This can strain your finances, especially if interest rates rise. Additionally, lenders may require you to pay for Lenders Mortgage Insurance (LMI), which protects them if you default, adding to your costs. A lower deposit also means less equity in your home, making it harder to refinance or sell if property values fall. This could leave you in negative equity, where your loan exceeds your property’s value. Furthermore, economic downturns or personal financial setbacks could increase the risk of default. It’s crucial to assess your financial stability and consider these risks before committing to a 15% deposit home loan.
Can I combine a 15% deposit home loan with Australian government grants or schemes like the First Home Guarantee?
Yes, you can combine a 15% deposit home loan with Australian government grants or schemes, such as the First Home Guarantee. The First Home Guarantee allows eligible first-time home buyers to purchase a home with a deposit as low as 5%, with the government acting as a guarantor for up to 15% of the loan. This means you can potentially use your 15% deposit to meet the requirements of both the home loan and the government scheme. However, eligibility criteria and specific conditions apply, so it’s important to check the details of the scheme and consult with your lender to ensure compatibility. Additionally, other grants or incentives may be available depending on your state or territory, which could further assist in your home-buying process.
Need extra help?
If you’ve saved 15% 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.
