Even though home loan industry is taking a backseat, the real estate costs still remains a challenging endeavour to first time homebuyers especially with the increasing interest rates over the past months.
Financial institutions have implemented a tight strap on the lending standards, so you need to have a reasonably huge amount for deposit. Even a minimum of 10% can make you feel more confident about your savings.
What are the possible options?
Now could be the right time to consider purchasing a property in conformity with a family member or friend. There are actually a lot of ways to do this, two of which are:
- Family Equity Home Loan
- Tenants in Common
A family equity mortgage allows any of your family member including your parents, grandparents, aunts and uncle, to render assurance to support your home loan application by offering their personal assets as collateral to guarantee security for the home loan. Therefore, their property would serve as the mortgage’s surety to guarantee of your mortgage loan.
The guarantor has the potential to insure the entire amount of the mortgage, or may only cover a given percentage of the home loan. Most commonly, each parties’ perspective will most likely be this – the lesser the collateral, the more favourable it would be since loan providers are likely to go after the guarantor’s money in the event that the debtor fails to make the payments.
Hence, it is important for a borrower to set aside a financial budget to handle the outlays and repayment schedules. It is also important to comply with the repayments so the guarantor would be confident enough knowing that their own money will not be put at risk.
Ideally, repayments must be met ahead of time. Making payments in advance is an excellent approach to be free from your mortgage at the earliest time. It also benefits the guarantor since it will free them from any apprehensions pertaining to their responsibility on the legality aspects and liabilities of the mortgage in question.
LMI and LVR
Once you have entrusted a guarantor, it means you can easily acquire extra money compared to what the loan provider would offer you considering your present condition. Or you can get away from having to pay the LMI or Lender’s Mortgage Insurance. This type of insurance protects loan providers against losses in case you fail to pay the mortgage loan, and that they have to take back the property and offer it to other potential buyers at a more affordable price, the amount would then be lesser.
As an example, let’s say you would like to buy a $300,000 worth of property and lend a $285,000 amount of money. This will give you a Loan to Value Ratio or LVR of 95%, which means you need to offset an advanced LMI. By giving an amount of protection worth $60,000 coming from your family (parents, grandparents, etc.) to supplement security, the LVR would decrease to 79%. Therefore, there is no need for you to pay the LMI. Allowing you to save a great amount of money and loan providers will lend you a good amount considering your LVR is lesser.