15 Sep 2009

Escape the Rent Rut

Q. My husband and I pay a large amount in rent each week, which we see as dead money. We both have well paid jobs and we are sure we could pay off a home. Our biggest problem is that whilst we are paying rent, we can’t seem to save a deposit. We have enough saved for all the costs associated with buying a home but the deposit just seems to be out of reach.

Is there any way that we can get a loan to buy a home without calling on help from our parents?

Frustrated Renter

A. Over the past 6 to 12 months, many lenders have opened up the home loan market for people in exactly your situation. People who have good jobs with stable employment and living arrangements and who can demonstrate the ability to pay off a home, but just can’t seem to get the appropriate deposit saved, may now be able to successfully apply for a home loan.

This need has led to a number of lenders offering 100% or No Deposit Home Loans. These loans are exactly what the name states: the lender will allow you to borrow 100% of the purchase price of the home. In some cases the lender will even allow you to borrow the costs associated with buying a home, leaving your savings to buy furniture, curtains etc.

These types of loans are not for everyone. The lending criteria is tougher than a normal type of loan (as the risk is higher for the lender). Interest rates are normally higher as well. In this regard though, it may be better to pay a higher interest rate for a few years to get into the market rather than continue to try to save a deposit.

By way of example, if you were to purchase a property worth $280,000 with a 1% higher interest rate, it would cost you an additional $2,800 annually. This would be more than offset if the same house increased in value by 5% each year, being an increase of $14,000 annually.

The trick in these situations is to be well informed and to do your homework. With this in mind, your first point of call would be to contact the office to find out if you meet the criteria and discuss the pros and cons of 100% home loans. They can be the right answer in the right situation.

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