Lack of deposit is one of the biggest hurdles that home buyers need to overcome when trying to enter the property market, be it for the first time or returning after some absence. People seem to be completely unaware that it is not possible to borrow without a deposit. Some home buyers even hope to borrow more than the purchase price of their home, including purchase costs and some money for debt consolidation.
Unrealistic buyer expectations can result in many potential borrowers being disappointed when they realize that being able to afford the loan is not enough.
First Home Buyers
First home buyers are the segment of the population that often have little or no deposit. They are still young and have not had the opportunity to put together the $20,000 plus that may be required to start property ownership.
First home buyers need to plan ahead. t is difficult to decide that it is time to buy and the expect that with no saving a mortgage application will be approved. The lender wants to see that you do not only have the right income to afford repayments but you also know how to save. This skill will be critical as you get older and have more and more expenses to cover out of your income.
First home buyers generally need to have at least 5% deposit saved. Some lenders will accept gifted deposits from family or even limited guarantees against the parent home in lieu of a deposit. The more deposit you have the safer is your financial position. Should one of the borrowers lose their job, or if the couple decide to have children, it will be harder to manage with a large mortgage. The larger the mortgage, the higher the risk of falling behind if income drops.
Self employed borrowers
Generally speaking if you are self employed, lenders can perceive that there is less stability to your income, As a PAYG if you lose your job, you can apply for another. As a business owner, if things go bad – it can be far more difficult to recover. Consequently banks will want the self employed borrower to provide far more financial documentation before approving their mortgage. If you are a low doc borrower, whose tax returns have not been completed for some time, expect to offer at least 20% deposit. Most lenders will not consider low doc applications where the borrower does not have at the minimum 15% deposit plus costs.
Bad credit borrowers
When we talk of bad credit borrowers, we are talking of people who have some bad credit on their credit report. This bad credit must be paid out. Lenders will not consider home loan applications irrespective of deposit from borrowers who have unpaid defaults.
Bad credit borrowers can not go to banks for a home loan. They need to approach non-conforming lenders who specialize in the bad credit segment of the market. These home loans tend to be somewhat more expensive and also call for at least 20% deposit. If you are a bad credit borrower with recent defaults or part 9 or bankruptcy and all you have is $5,000 deposit – you are not going to be successful in a home loan application. You really need to have $20,000 deposit for every $100,000 that you need to borrow.
Unfortunately irrespective of your circumstances, home loan borrowers who have no deposit can not qualify for a loan. A deposit of several thousand is really no deposit when t comes to a mortgage, unless your purchase price is under $100,000.