In the modern mortgage market, is it still possible for home buyers to get 95% LVR loans (or even higher) to purchase a house, or are those days long behind us?
About a decade ago, Australia's property investors and home buyers could access 100% loans with ease – and in some cases, loans as high as 105% were relatively available.
Nowadays, lending criteria from banks is stricter, and most banks and lenders have restricted the loan to value ration that they’re willing to extend to borrowers.
So is it possible to get a high LVR loan to buy a house these days if you don’t have much of a deposit? The simple answer is, it depends.
The Big Four banks are generally willing to finance home purchases of up to 95%, provided you have a very strong employment history and savings history and evidence of genuine savings. The loan amount will also strongly influence the lender’s decision.
Non-bank lenders such as RAMS are also offering up to 95% of the property value. They may also add an extra 2% to help cover lenders mortgage insurance (LMI) capitalisation. This means the borrower can get a 95% loan and then add the cost of the LMI to the loan.
So how much deposit do you really need to purchase a house?
In order to purchase a home of $400,000, you could access a 95% loan of $380,000, meaning you’ll need to provide a cash deposit of $20,000. However, you can add the cost of LMI of to the loan amount (up to $8,000), which brings the total loan up to $388,000 or 97%.
Ultimately, it doesn’t matter whether you’re looking to buy in WA or Western Sydney for investment purposes or for your own home: if you’re in the market for a low-deposit loan, there are certain things you can do to boost your chances of approval. Homeloanexperts.com.au offers the following advice:
Clear credit history
This means that your credit file has no blemishes whatsoever and that you have paid all of your bills such as rent, credit cards, personal loans and other debts on time every time for the last six months.
In most cases you must have been in your current job for 6 to 12 months.
Lenders are more conservative when assessing your ability to repay a 95% loan, so your serviceability ratio must be outstanding.
Good asset position
Lenders want to see that you have a good asset position relative to your age and income.
You will generally need to prove that you have saved 5% of the purchase price.
Applicants with many credit cards and personal loans may struggle to be approved. As a rough guide, people who have more than 7% of the purchase price in unsecured debts such as personal loans and credit cards are often not approved.
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