Buying a home is a big financial commitment that, in most cases, requires years of saving in order to get a deposit together. However, there are home loan options available that can allow you to get on the property market sooner than you might think.
Below, we’ll be exploring the features and benefits of no deposit home loans, namely the Family Guarantee Loan, looking at its certain limitations, eligibility criteria, and more.
As experienced mortgage brokers, Simplifi Lending specialises in helping home buyers secure a Family Guarantee Loan. Our extensive lender network and in-depth knowledge of the market allow us to find you the most competitive rates and terms available, and we’ll use every skill at our disposal to match you with a loan that aligns with your financial situation and goals.
The first thing to know when looking at no deposit home loans is that there is really only one option available – the Family Guarantee Loan, which is also sometimes referred to as the “Family Pledge Loan” or “Family Equity Loan”. This makes it possible for first-time homebuyers to purchase a property without a deposit, as long as the loan repayments can be guaranteed by a family member.
A Family Guarantee Loan offers a range of features and benefits that cater to aspiring homeowners looking to step into the property market without a deposit. These include:
If you have a suitable guarantor and can access a Family Guarantee Loan, you could save thousands of dollars on lenders mortgage insurance that may have been payable to your chosen lender. This premium varies depending on bank, loan size and loan-to-value ratio, but can cost into the tens of thousands of dollars.
Many lenders price loans with lower deposits at a higher interest rate due to the increased risk. This may not apply for a Family Guarantee loan though. Because the bank is fully secured with the extra security of the guarantor, they may price the loan much more favourably than if you didn’t have a guarantor. This can be a large difference in interest rate which can very quickly save you thousands in interest.
With no deposit required upfront, buyers can take advantage of upswings in the property market and stop delaying their home purchase while trying to save a full 20% deposit. This can be crucial in hot markets that are rapidly appreciating and may reduce the risk of being priced out entirely.
Rather than seeing your money go to a landlord through rent, your monthly mortgage payments start contributing towards equity in an asset you own. As you pay down the principal over time and the property value rises, you build an increasingly valuable equity stake much sooner than if you’d kept renting while saving for a deposit.
Rent payments provide no return or ownership interest and are often viewed as ‘dead’ money. With a Family Home Loan, you can stop throwing away money on rent years earlier and instead direct those funds towards building equity in your own property.
While there are plenty of good reasons to consider a Family Guarantee Loan, there are also some limitations that may mean it isn’t a good or feasible option for you. These include:
Before you can apply for a Family Home Loan, you’re going to need a willing family member. This is often easier said than done, and your family guarantor will need to be made fully aware of the risks involved in backing your home loan, including the possibility of having to cover repayments if you were to default on the loan repayments. Some banks may require guarantors to obtain independent legal advice.
Your chosen family member guarantor also needs to have sufficient equity in one of their properties to support the guarantee. Put simply, this means the value of the property, minus any outstanding mortgage or loans must be enough to cover the portion of the loan being guaranteed.
Family Guarantee Loans are intended for purchasing a property for the applicant to live in, and this means it may not be a suitable choice if you’re looking to purchase an investment property. Naturally, this will vary between lenders and some offer a little more flexibility, but in most cases you will be limited to purchasing a residential property only.
When it comes to finding a no deposit home loan that suits your financial situation, it’s important to know what your options are and what you need to consider. At SimpliFi Lending, we’ll do the hard work for you, comparing different lenders and interest rates and offering you expert advice on each.
Things to consider when looking at no deposit home loans include:
As with any loan, you’ll need to provide certain documents and meet certain criteria when applying for a no deposit home loan, including:
Lenders will want to see evidence that you have a steady, reliable income source to meet your mortgage repayments. This may include payslips from your employer covering the past two months, tax returns and notice of assessments for self-employed applicants.
Even though your loan is backed by a guarantor, a Family Guarantee Loan still requires you to have an impeccable credit history with no issues like defaults, bankruptcies, or missed payments. Lenders will conduct these searches based on the information you give them, but you may also be asked to supply a credit report from a major credit bureau and statements showing good repayment conduct on other debts.
Standard identification documents will also be needed, such as a driver’s license, passport, and birth certificate. Some lenders may also ask for a copy of your Medicare card to confirm your identity.
The expert team of mortgage brokers at SimpliFi Lending can help you by assessing your financial situation and reviewing your options across more than 40 top home lenders. We’ll also:
We’ll also be by your side after your loan has been finalised and can assist with:
Are you ready to get started with your no deposit home loan application? Contact us today to speak with an expert mortgage broker and book your no-obligation Preliminary Assessment.
A guarantor is a third party, often a family member, who guarantees the loan by agreeing to repay the debt if the borrower defaults. They will also usually need to provide a secondary security (typically a property) to support this guarantee. This provides additional security for lenders and allows qualifying borrowers to access a home loan without a deposit.
Some lenders may offer no deposit options for investment properties, but eligibility criteria may be stricter. It’s a good idea to consult with a mortgage broker if this is a path you’d like to pursue, who will be able to look at your options in more detail.
To improve your chances of approval focus on improving your credit score, reducing your existing debts and demonstrating you have a stable income. You can also provide additional security, such as a guarantor, to enhance your eligibility for a no deposit home loan.
Lenders typically cap the LVR for no deposit home loans between 100% and 107% of the property value to manage their risk, but the maximum amount will vary between lenders and their policies. Borrowing over 100% of the property value is usually only available to cover costs associated with purchasing (stamp duty, legal costs etc.)
Many lenders offer flexibility with their no deposit home loans, allowing you to make additional repayments and access redraw facilities. These features can help you pay off your loan faster and manage your finances more effectively. We will discuss your loan structure in detail with you before submitting.
The approval process for a no deposit home loan will vary depending on the lender and the borrower’s circumstances. Generally speaking, it takes 1-2 weeks to complete the entire application process as long as you provide all required documentation needed to expedite the process.
