Like the no deposit home loan, a low deposit loan is a great way for home buyers with good cash flow but not much of a down payment to get into the housing market. Lenders will set more strict criteria for low deposit loans, require mortgage insurance, and there will be higher interest rates in the long run, but they will allow borrowers up to 90-97% of the home price with this type of loan.
More About Low Deposit Home Loans in Australia
Like no deposit home loans, low deposit loans can be a boon to those who are trying to enter the housing market but who do not have adequate funds for a sizable down payment. There are many buyers, such as those in the market for the first time, who may have good monthly cash flow but not much set aside to put down, unlike established home owners, who usually have equity or available collateral for a traditional down payment. A low deposit home loan allows buyers to get on the road to home ownership for as little as 3% down in some cases.
Advantages of Low Deposit Home Loans
Typically, the home buying process sees a prospective buyer offer a down payment of anywhere from 10-20% of the value of the home. A low deposit home loan broadens the market and allows those with a smaller down payment to get a loan. This is the biggest advantage of this loan type. Rather than wait to enter the market while painstakingly saving money for a larger down payment, eager home buyers can enter the housing market right away. The typical down payment for a low deposit home loan is 5%, though some lenders may go as low as 3%. This is especially helpful to younger home shoppers, who may be able to get this amount from savings or gifts from relatives.
Disadvantages of Low Deposit Home Loans
Just like with no deposit home loans, low deposit loans have a variety of drawbacks. Mortgage insurance is required for low deposit loans. This adds to the amount a borrower will pay monthly for the home. Interest rates and fees are also higher on low deposit loans. Finally, putting less money down means the entire loan amount is larger, so the payments will be bigger as well. Add these together and the monthly amount for a first-time home owner with a low deposit loan is significantly higher than the payment for a home owner who was able to offer a larger down payment and avoid the additional insurance, higher rates, and fees. Still, when the alternative is pay rent every month with nothing to show for it, the added cost is worth it for many. For more information on low interest home loans or to find out which type of loan is right for you, please fill out the contact form below.