Most buyers pay a 20% deposit upfront and the rest of their loan is financed by the lender. It can be difficult to save up enough money to put in 20% of the loan value as down payment, but it does help build the lender’s trust and opens up different options.
However, this doesn’t mean there’s no alternative for people who can’t come up with thatdownpayment. At Home Loan Comparison Co, the expert mortgage brokers in Melbourne, we’ve noticed that people often struggle with this aspect of home loans and don’t have enough money for a downpayment. They can apply for a no deposit loan.
What is a No Deposit Loan?
A no-deposit loan is a home loan option that requires no down payment. This loan is often called a guarantor loan because you need a family member or guarantor with their own property willing to act as security for the loan. This option isn’t available for every borrower because no deposit loans have a much higher risk than other alternatives available. Lenders will examine each application carefully before they’re willing to take this risk.
How Does This Work?
If you can’t come up with a home loan deposit, you can speak with your relatives or friends about acting as your guarantor. The guarantor will secure a portion of your home loan with their own property, which means if the home loan isn’t paid back, that property might be at risk.
These loans have similar features and interest rates to regular home loans because of the security provided by the guarantor. You can use a regular home loan comparison tool to determine which option is the right choice for you.
While shopping for a no deposit home loan, take a good look at the lender’s policy on guarantors. Most lenders will have some terms and conditions they will expect you to adhere to. While no deposit loans make things more convenient, they’re not always the wisest financial decision. Experts encourage borrowers to put down at least 5% of the home value as deposit and choose a low deposit home loan instead.
You can take out a personal loan for the 5% or use a monetary gift to finance this. That’s a much better alternative to no deposit home loans. If you want to know more, don’t hesitate to contact us at 0419 856 669.