- 100% finance
Low deposit or low savings options include nil or up to 5% deposits (i.e. 100%, 97% and 95% loans) but usually require proof of deposit, a savings history (usually over 6 months) and income. If you have a relatively strong income (greater than $60,000 combined) and are not prepared to wait and save for the deposit, then this option can be for you. This strategy offsets the risk that the price of property may go up faster than you can save for it; you may miss out on the property of choice; or there is a significant opportunity cost in waiting - compared to doing something now. For example, there maybe lifestyle issues to consider. Low deposit options are viable where you have higher incomes, a high savings capacity and a relatively low level of consumer debt. For example, the 10 to 12 week construction phase for a new house or longer settlements can be used to accumulate the required 3% or 5% deposit.
Low deposit options are even more accessible if you qualify for the Government's First Home Buyers grant of $7,000. First Home Buyers can find the FHOG helpful if their current savings are insufficient and they do not have the mandatory 3 to 6 months savings history or deposit required by most lenders. The most desirable option will depend on your level of income, price and location of the desired property and level of consumer credit debt. The predominant factors that would “pour cold water” over a low deposit purchase strategy include insufficient income to service a mortgage or considerable personal debt in the form of personal loans and credit cards that reduce your debt servicing capacity.
100% loans are also useful for property investment purchases too for the same reasons. If you are short of the required deposit or equity this can be an effective financing solution to take advantage of an opportunity.
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- Gifting
Third party gifting has been around a long time and has been used by lots of people to complete the purchase of a property. Usually, a third party (family, friend or relative) lends or gifts 5% to 10% of the purchase price and the purchasers borrow the rest from traditional sources such as banks. No proof of savings is required if the gifted amount is sufficient.
A recent innovation on this theme is a “pledge” or guarantee of the deposit amount by a family member or friend with equity in property. The third party pledges or guarantees the deposit - secured against existing property. The lender will then advance the full purchase price. Essentially this is another way of engineering a 100% lend.
Reverse mortgages also allow retirees (either a relative or parents) to gift the deposit by taking out a reverse mortgage for the required amount. The loan does not impact on pension entitlements and there are no repayments. There are lots of ways to structure this for everyone’s benefit. Read more ...
- Borrow the deposit
Get a personal loan specifically for the deposit.
- Vendor Finance
is where the vendor or seller lends you the deposit or alternatively any other amount to complete the purchase. An interest rate and terms are struck which is acceptable to both parties. Alternatively, a vendor may offer a cash rebate or discount. This option is less favourable as most lenders will discount the valuation of the property by the discount or rebate amount.
- Wrapping
is an variation of vendor finance where a vendor buys a property and then onsells it to a buyer. The buyer can purchase the property at some point in the future - usually at an agreed price. People who buy wrapped property pay a premium interest rate and a margin above the original purchase price. This can be an effective solution for people who would normally not qualify for mainstream finance.
Wrapping has been recently popularised by a number of identities with some proponents suggesting that wrapping is the only way to buy and sell property. This notion of course is quite silly and simplistic. Wrapping is an involved and complex process that has limitations. However, there are some good DIY programs available with comprehensive legal, financial and marketing templates for people who want to pursue this strategy. If you are interested in wrapping and would like further information or assistance visit: Vendor Finance (Wraps) Association
Be aware that Rent/Buy or Lease/Purchase, Vendor Finance and Wrapping options come at a price (usually higher) and involve more risk (for the purchaser - there is usually no legal title to the property).
- Rent/Buy or Lease/Purchase
s a strategy available for people who want to purchase their own home but have a high level of personal debt in the form of credit cards or personal loans. From a lender's point of view, a high proportion of you income is going out to repay consumer credit debt. If 30 to 35 percent or more of your income is devoted to credit repayments of one kind or another than most banks would consider you are living beyond your means and would decline finance for a home. However, a lease back and purchase option plan can give you the chance to buy later. A proportion of your lease payments goes towards accumulating a deposit. If combined with a home budget you can start to put your house in order and achieve the dream of your own home.
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