For many of us buying our first home is a goal we hope to achieve in the near future, although not many people really know if they’ll ever be able to afford it. The stereotype is that you need a huge chunk of cash to put down as your deposit or you can kiss the keys goodbye.
However, purchasing a first home has actually become a lot more attainable for young people. Deposits can be as little as 5% and with the added access of a first home buyers deposit, many young people are finding their feet and stepping into the property world.
It’s unlikely that young people, many of which are students or part time retail workers, will be able to put forward a full twenty percent deposit for a home loan, which is why the 5% deposit is so enticing. If you’re looking at purchasing your first home soon it is important to acknowledge that deposits under the 20% mark bring the inclusion of Lender’s Mortgage insurance.
Lenders’ Mortgage insurance is added to protect the lender should you be unable to meet your repayments once your loan has been approved. It also provides them with the confidence to still grant your loan even if you can’t meet the 20% deposit.
How to pay it: Once your lender has established the cost of your insurance you can either chose to pay it as a one-off fee at the beginning of your loan or you can choose to add it to your mortgage repayments, with the addition of interest over time.
How can LMI be a good thing?
LMI can be a good thing as it allows you to enter the market and own your own home sooner, this means that a smaller deposit will still allow you to purchase a property and not have to face the daunting prospect of saving twenty percent.
There are ways to avoid having to pay LMI, although it is important to assess these options and see if they are right for you. The first way is to be able to provide the 20% deposit upon purchase. If you can’t reach the full 20% another option is to have a guarantor. A guarantor is someone who can assist with the security aspect of meeting your repayments. This can be through a relative listing their own property or assets as the insurance to fall back on should your repayments not be met.
No longer should we worry that we’ll never be able to afford our own homes, we simply need to be smart, put those saving caps on and visit your local bank for all the information you may need.
Happy house hunting!
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