To secure a 97% home loan, essentially a 95% home loan with Lenders Mortgage Insurance (LMI) added, you must meet stringent criteria. Borrowing 95-97% of the property value requires adherence to the following: 

• Sufficient Income: Meeting the bank’s ‘serviceability ratio’ necessitates earning enough to cover the home loan and other commitments without hardship. 
• Stable Employment History: Most lenders prefer a stable job held for the past 6 to 12 months, although exceptions exist. 
• Clean Credit History: Bills, rent, credit card repayments, and other commitments must be consistently paid on time over the last 6 months, with a clear credit file. 

• Minimal Debt: Holding less than 5% of the property purchase price in debt is generally accepted on a case-by-case basis. 
• Adequate Asset Position: Possessing assets like a car, shares, or a term deposit comparable to your age is necessary. 
• Property and Postcode Restrictions: The property type and location impact approval chances, with banks cautious about properties that might be challenging to sell in case of default. 
• 5% Genuine Savings: Regular savings equivalent to 5% of the purchase price over 3 months is usually required, but some lenders may accept a gift from parents. 

Understanding the Process 

Only a few lenders offer 95% home loans, and even fewer allow borrowing up to 97% or higher. The additional 2% caters to the one-off charge for LMI when borrowing over 80% of the purchase price. LMI protects banks in risky situations but doesn’t benefit borrowers. 

If you qualify for a 97% home loan, the LMI cost is “capitalized” or added to your home loan, eliminating the need for an upfront payment. This means you pay off the LMI with your mortgage repayments, saving you thousands upfront, depending on the loan amount. 

LMI Coverage by Lenders 

LMI generally amounts to around 2% of the property value, but some lenders may only cover 2% of this cost, leaving you with additional expenses. Choosing a lender willing to cover the full LMI amount, even if it exceeds 2%, is crucial for borrowing up to 97.5-98%. 

Genuine Savings Requirements 

When borrowing more than 90% of the property value, most lenders mandate genuine savings equal to 5% of the purchase price. While this can include shares or a term deposit, it typically refers to regular deposits into a bank account over at least 3 months. 

Even if your deposit is from a personal loan, FHOG, or a non-refundable gift, most lenders won’t consider this genuine savings. However, we can help you qualify with a non-genuine savings lender. 

Borrowing Beyond 97% 

Certain lenders may allow you to borrow more than 97% of the property value, and in some cases, up to 105%. This includes covering extra costs associated with the purchase. Alternatively, you can explore guarantor loan arrangements where your parents and close relatives secure the mortgage with their property, allowing you to enter the market with no deposit. 

Interest Rates and LMI Premiums 

While interest rates may be slightly higher when borrowing over 90%, the difference is usually minimal. LVR is considered high risk, but with the right lender and a strong financial situation, you can secure a competitive interest rate. 

Importance of Comparing LMI Rates 

When obtaining a home loan, many focus on securing a low interest rate and overlook LMI premium rates. LMI rates rise significantly for loans above 90%, with premiums depending on factors like being self-employed or lacking genuine savings. 

Choosing the right lender is crucial for favorable LMI rates. Speak to a mortgage broker for assistance.