August 23, 2017
With property prices looking the way they do, it could be a good time to buy your first home now rather than later. Experts are predicting the Melbourne property prices to go as high as $1 million by the end of 2018. But getting into the property market is still hard for first home buyers.
Saving a deposit is the deterring factor for some first time buyers wanting to enter the property market. Many think they need a 20% deposit before they can get a loan and whilst this is true if you want to avoid paying mortgage insurance, there are still ways to buy your first property with little or no deposit.
If you are going to buy a property alone or as a couple, or even with friends or family you will need a minimum of 5% of the purchase price as a deposit.
Here are a few options
To show that you are committed, they generally want to see some genuine savings for a period of three months, to show that you have been disciplined with your savings.
If you have not been able to save for a deposit, but have been renting you can use this to your advantage. Rent paid through a real estate agent can be used to show genuine savings instead of actual savings as evidence that you have been disciplined with this type of commitment. But you still need to come up with the 5% deposit as far as having the money goes, but it is not important that you “saved it all up yourself” you can raise the 5% from various means, i.e., a gift, a tax return, a bonus from work or the sale of an asset, like a car or bike. The only restriction is that it can not be borrowed funds.
The third option is getting your family to help you. The bank will accept equity in the family home by way of a second mortgage, in lieu of a cash deposit.
There is an upside and a downside to this option. The upside is that under this policy, there is no requirement for mortgage insurance, so there is a significant saving. The downside is that your parents or family are tied to your property until they are released by either paying down the loan or your property value rising so that they are not required for equity anymore. Make sure you get the right advice about this option.
The other upside with this option is that you may be able to buy a home with no deposit. If you are entitled to the first home owners grant, this will pay for your expenses, such as legals and transfers etc with money to spare.
So as you can see, there are ways to buy your first property with little or no deposit. Before you decide on an option, make sure you seek the right financial advice to fully understand what all of these options will mean for you. Just keep in mind, the smaller your deposit, generally the larger your repayments will be, so make sure you know your budget and comfort level with repayments so you do not get overwhelmed. Talk to us today to see how we can assist you with these options.