Home Loan Deposit

23.02.2021by

Article summary

An earnest money deposit is a deposit of good faith on a home loan from a buyer to a seller that serves to protect VA buyers and sellers in a real estate transaction. Skip to Content A VA approved lender.

  • The First Home Loan Deposit Scheme (FHLDS) is an Australian Government initiative to support eligible first home buyers to build or purchase a new home sooner. The Scheme is administered by the.
  • Those additional 10,000 first home buyers will be able to obtain a loan to build a new home or purchase a newly built home with a deposit of as little as 5 per cent 3. However, in more good news, the budget.
  • Homebuyers who lack the funds for a deposit have another option available to them: the 100% home loan, in other words, a home loan with no deposit required.
  • Banks in South Africa are currently approving more 100% home loans, in an attempt to boost the property market.
  • Although putting down a deposit has many benefits, the 100% home loan presents first-time home buyers, who may have limited resources, with a viable way into the property market.

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While there are many benefits to putting down a deposit on your home, in today’s tough economic climate it may be more realistic to take out a 100% bond, especially if you’re a first-time buyer who does not have easy access to a deposit.

Indeed, if you fall into this category of homebuyer, you’re not alone. According to Kay Geldenhuys, Head of Sales Fulfilment at South Africa’s largest home loan comparison service, ooba Home Loans: “More than 60% of all the applications received by ooba Home Loans are from buyers who have no access to a deposit”.

More 100% home loans are being approved

According to Geldenhuys, over 80% of these applicants are being approved for finance, and four out of five are successful in their bid to secure a 100% bond. The rest are required to raise a deposit, usually between five and ten percent of the purchase price.

“Contrary to the widely held belief that the chances of getting 100% financing are slim, these stats prove that, when correctly represented, buyers have a very good chance of obtaining a bond without a deposit,” she says.

How a home loan comparison service can help you get a 100% home loan

However, Geldenhuys emphasises the importance of using a reputable home loan comparison service. “Banks are willing to approve 100% bonds if they can see that you have a clean credit history and can comfortably afford the monthly repayment instalments. A reputable home loan comparison service will ensure you are correctly represented to the financing institutions so that they view your application in a favourable light.

“It’s essential that these candidates evaluate their financial situation before applying for a bond,” she adds, noting that there are, equally, many advantages to putting down a deposit.

100% home loan versus putting down a deposit

“By providing capital upfront in the home-buying process, you will avoid paying interest on that amount of money for the duration of your loan period, which can amount to a significant saving in the long term,” she explains, adding that “It also stands to reason that the smaller the risk for the bank, the more negotiable it will be on your interest rate”.

Why now is a good time to get a 100% home loan

The banks’ confidence in the South African property market has resulted in a greater willingness to lend, with ooba Home Loans reporting a 4.5% increase in their home loan approval rate since the third quarter of 2018. There has also been a 5.1% increase in the approval rate of 100% home loans, partially as a result of banks catering to the needs of first-time homebuyers, who are less likely to have money for a deposit.

To gauge the affordability of your property price, and the likely chances of obtaining bond approval, it’s advisable to get prequalified with a home loan comparison service such as ooba Home Loans, who provide prequalification as a free service prior to the start of the home-buying process.

“Once you have an indication of the deposit required, you’ll be better positioned to consider the best approach needed to obtain your financing,” Geldenhuys says.

ooba Home Loans also offers a range of tools that can make the home-buying process a lot easier. To calculate your monthly bond repayments at different interest rates, use ooba’s bond repayment calculator. Then you can use the ooba Bond Indicator, a free, online prequalification tool, to determine your credit score and what you can realistically afford. Finally, when you’re ready, you can apply for a home loan.

Many home buyers assume they’ll need a 20% deposit before they can apply for a home loan, but that’s not necessarily true. Features such as lenders mortgage insurance (LMI) and family guarantees mean that some lenders may let you buy your home with a much smaller deposit than you might think.

Home loan deposit calculator

The myth about the 20% deposit for a house

When it comes to saving for a home deposit, you’ll often hear people bring up a minimum figure of 20%. In other words, if the purchase price of your home is $500,000, many people will tell you that you need to have a deposit of $100,000 saved before you can apply for a loan and purchase your home. But that’s not always the case.

While it’s correct that most lenders generally like to limit their exposure to a loan-to-value ratio (LVR) of 80% – which means that they’d expect you to pay 20% of the purchase price of the property – in some cases you may still be able to satisfy a lender’s risk criteria, even without having saved 20% of the purchase price. Betanysports lottery.


What if you don’t have a 20% home loan deposit?

One way a lender may let you overcome a small deposit is by giving you the option of paying for lenders mortgage insurance (LMI). LMI is insurance that protects the lender if you can’t meet your mortgage repayments and default on your loan.

With LMI, a lender will sometimes let you take out a home loan if you have as little as 5% of the home’s value if you’re an owner-occupier, or 10% if you’re an investor. That way, for the same $500,000 property, you could need as little as a $25,000 deposit if you’re buying your own home or $50,000 if you’re an investor.

That said, if you do use the option of paying LMI, you will bear its cost – not the lender. That means your home loan will be more expensive too. You can read more about how lenders mortgage insurance works here.

Another alternative: family guarantee

Another option some lenders offer to home buyers is the chance to use a family guarantee. A family guarantee allows a close family member such as a parent, grandparent or sibling, to use the equity in their home to provide additional security for your loan, thereby giving the lender extra protection.

Unlike a full guarantee, a family guarantee usually only requires a guarantor to provide security until a particular threshold is reached. For instance, if you have a five percent deposit, your lender may allow you to use a family guarantee to provide 20% security so that the equity in the guarantor’s home provides the remaining 15%.

Once you’ve paid down enough of your loan to reach this threshold – or even if the market rises enough so that your LVR is now only 80% – you can usually have the family guarantee released.

The benefits and disadvantages of a family guarantee

Because it offers additional security, a family guarantee may allow you to borrow more than you otherwise could. You may also be able to reduce the amount of LMI you need to pay, or possibly avoid it altogether. However, your lender will still want to make sure that you can meet your repayments and will assess your capacity to repay any loan.

If you do choose this path and you have a family member willing to help you out, they should always be careful to get their own independent financial and legal advice before signing anything. After all, if you default on your home loan the lender may ask them to provide the guaranteed portion of your loan.

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Other upfront costs you shouldn’t forget

While your home deposit may be the largest cost you’ll need to pay when you buy a home, there are some other upfront costs you’ll need to cover also. These can include stamp duty, pest and building inspections, legal or conveyancing fees, removalists costs and more.

Of these, it is stamp duty that usually represents the largest cost. Although, in many States and Territories, you may be entitled to a stamp duty discount if you’re a first home buyer.

Generally, you won’t be able to borrow for the cost of these expenses and you will have to meet them out of your own pocket. You will also usually have to pay most of them at, or around, the time your property settles. That means you should always budget for saving for these, as well as any deposit.

Home Loan Deposit

When it makes sense to buy a home with a small deposit

Loan Depot Loans

Finally, while a bigger deposit usually ensures you need to borrow less, it’s always worth remembering that there are times it may make sense to purchase a home with a smaller deposit. This could include where saving a large deposit isn’t realistic, or where the market is rapidly rising and saving for a larger deposit could cost you extra money and mean you need to save even more.

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