When the deposit is the issue, not affordability

Sometimes affordability is not the issue when it comes to buying. You know you can afford to pay a mortgage, especially if serving that mortgage will be less than your current rent, but the problem is finding a deposit. 

Typically, you will need a 5-20 per cent deposit, but this could take years to save. Fortunately, there are ways to get your foot on the property ladder without having substantial savings. 

Lenders Mortgage Insurance 

When a deposit is less than 20 per cent of the property value, the lender will require you to pay a one-off mortgage insurance fee. This is called Lenders Mortgage Insurance. It is designed to protect the lender if you fail to make your home loan repayments.  

It is an extra cost, but it does help you get a loan when you have a smaller deposit. If you cannot pay it upfront it may be added to the amount you borrow. 

Find someone to go guarantor 

Generally, a guarantor is a third party, usually either a parent or family member. If you cannot offer the required deposit, a guarantor might be the solution by providing the lender with extra security. Usually, the guarantor's existing equity on their property represents this security. 

A guarantor is not expected to make any repayments on your loan, but if something were to happen to the borrower, the lender will turn to the guarantor to make the repayments.  

Having a guarantor may mean you can borrow without paying Lenders Mortgage Insurance. 

Find a co-borrower 

You could co-borrow with someone else. This means splitting the deposit and sharing the equity between the two of you. 

If you go down this route, be sure it is with someone you trust. Seek legal advice, as the responsibility for the loan could potentially fall on you if the other party does not meet their loan repayments. 

See what grants are available 

If you are a first-home buyer and planning to build or buy a newly completed home, you may be eligible for a grant such as the $10,000 First Home Owner Grant (FHOG). This may count towards your deposit. The grant is not available for purchases of established homes. 

Consider other options 

When looking to get a home loan most of us immediately think of banks, but there are other options out there.  

Keystart aims to make affordable home ownership a reality through a range of loans, such as a low deposit loan, shared ownership loan or the Urban Connect loan for people looking for inner city living and lifestyle close to transport hubs.  

It accepts deposits as low as 2 per cent, does not charge Lenders Mortgage Insurance and no savings history is required. If you decide to build you can use the FHOG towards the deposit. 

They are a transitional lender and encourage you to refinance with another lender when you are ready to do so. 

Be aware that the interest rate charged is higher than your standard lender and there are income limits and caps on the property purchase price. However, it may be just what you need to get you started on the path to home ownership.