Unlocking Property Ownership with a 3% Deposit Home Loan 

Introduction: Wondering if you can purchase a property with less than a 5% deposit? We’ve got you covered! Let’s explore the possibilities of a 3% deposit home loan. 

How it Works: Instead of struggling with a hefty upfront payment, a 3% deposit home loan operates as a 95% home loan. Here, the Lenders Mortgage Insurance (LMI) cost is integrated into the loan amount. For instance, on a $600,000 property, the LMI could be over $28,000. By adding it to the loan, you avoid the need for an upfront payment, making homeownership more accessible. 

Advantages of a 3% Deposit Home Loan: 

• A smaller deposit requirement for home loan approval. 
• No interest is charged on the LMI premium; it’s paid off with regular mortgage repayments. 
• Access to competitive interest rates similar to conventional borrowers. 
• Despite capitalizing LMI, a 2% shortfall remains for additional property purchase costs. 

Covering the Shortfall: If the 2% shortfall poses a challenge, consider these options: 

• Guarantor Assistance: Parents acting as guarantors can eliminate the need for a deposit and LMI costs. 
• First Home Owners Grant (FHOG): Some states offer grants that may cover the remaining shortfall. 
• Personal Loan: For high-income individuals with minimal debts, a personal loan could bridge the gap. 

Eligibility for Approval: Securing approval for a 3% deposit home loan involves showcasing: 

• Strong financial standing, including good income, assets, and stable employment. 
• Low debts and liabilities (less than 5% of the purchase price). 
• A clear credit file with timely payments over at least 6 months. 
• The property type and location meet the lender’s criteria. 

Genuine Savings Requirement: While a 3% deposit is enticing, genuine savings of 5% are necessary. This involves demonstrating a consistent savings history, typically over three months. Options like term deposits and rental ledgers count, but a guarantor loan offers a no-deposit alternative. 

Traditional Deposit Challenges: Avoid the stress of saving a 20% deposit, which could amount to $120,000 for a $600,000 property. Additionally, factor in costs like stamp duty. Some lenders allow up to 90% or even 95% LVR, but LMI fees become a hurdle. 

Understanding LMI and Choosing the Right Lender: LMI, typically 2-3% of the property value, can impede deposit savings. Choosing a lender willing to cover the full LMI amount is crucial. The government’s home loan deposit scheme for first home buyers offers an alternative, guaranteeing up to 15%, eliminating LMI fees with a 5% deposit. 

In conclusion, a 3% deposit home loan opens doors to homeownership with financial strategies tailored to your circumstances.