A low deposit home loan lets you borrow more than 80% of a property’s value. This means you can save a 5-10% deposit and borrow the rest. It’s a popular option for borrowers looking to buy their first home.
How small can my deposit be?
The standard deposit size for most lenders is 20% of the property’s value. In other words, borrowers need a loan-to-value ratio (LVR) of 80%. Low deposit loans come with an LVR of 90 or 95%. This means you can potentially get a mortgage with just a 5% deposit.
If you’re buying an $500,000 property, a 20% deposit is $100,000. A 5% deposit is just $25,000. That’s a huge difference.
There must be a catch, right?
There is. If you’re borrowing more than 80% of a property’s value you will have to pay lenders mortgage insurance (LMI) as well. Depending on how much you’re borrowing this can be a significant cost, ranging from several thousand dollars up to 10 or even 20 thousand dollars.
You can add this cost into your borrowing amount, but this can affect how much you can borrow.
For more information about low deposit home loans or to find out if you might be eligible call MC Mortgage Solutions today.