5 Home Loan Deposit
As you may or may not know, getting a low deposit loan with less than a 20% deposit is a lot more difficult and more expensive!
Help to Buy equity loan - The Government will lend you up to 20% of the home's value - or 40% in London - after you've put down a 5% deposit. The loan is on top of a normal mortgage but it can. A home loan term you’ll likely hear a lot is ‘LVR’. This stands for ‘Loan to Value Ratio’ and is the percentage borrowed compared to what the lender values the property at. This means if you have a $50,000 deposit and the property is worth $500,000, the LVR would be 90%; likewise, if your deposit is $100,000, the LVR would be 80%.
However, all is not lost – loans with a minimum 10% deposit are still available, although these will cost you more in fees than pre-LVR restrictions. New builds are allowed to be at 10% as they are exempt from the Lending regulations but you will still pay more for having the privilege of buying over 80%
Don’t forget you may be eligible for a First Home Loan which only requires a 10% deposit.
Find more information here
Why would I go for a low deposit loan?
You have saved $x which equals 10% of something. You can get on the property ladder. Yes, the loan repayments will be higher, but no lender will give you a loan if you cant service that loan. Service means you paying out of your income and declared expenses. At the beginning of a conversation with a Mortgage Adviser, that person will assess what you can service. That assessment is calculated at a higher rate because of the Responsible Lending code here in NZ. We need to ensure that you can pay in the future when the rates do go up, so you are assessed now at that higher rate.
Fees for Low Deposit Loans
Since the tightening up of low deposit loans, Banks and Lenders have not only increased fees and interest rates, but now also apply application fees and no longer offer contributions for legal fees.
So what fees are you up for?
- Low Equity Fee/Margin– The majority of lenders add a Margin (LEM) to your interest rate if you are over 80% lending. 80% to 90% starts at .25% up to 75% added onto the carded rate. This is not the specials you see advertised. eg. a 90% loan may be around 5.4% interest including that added .75%.
- Legal Fees for any Purchase – these can vary from solicitor to solicitor – so it pays to shop around. It’s always good to be referred to a solicitor as well.
- Registered Valuation – It is normal for banks to request a valuation for properties being purchased with less than 20% deposit. Also for private sales. Valuations can range from $650 upwards depending on the valuer as well as the value, size, and location of the property. This is ordered by the Mortgage Adviser once they know the lender that you are using. You, the client then pays for the valuation, the valuer goes and does the valuation. The Mortgage Adviser, you the client, and the lender all get a copy of the valuation. If the property is a newbuild, then a valuation called a Certifcate of Completion is needed at the end of the build to show its 100% complete. This is cheaper and is a requirement from the lender to complete the loan
Don’t get scared off with all of this
It’s all how you structure the loan when you get your home Start off by working it down to 85% borrowing, then the added interest rate reduces. Then get it down to 80% and then you are where you and the lender want to be – at 80% lending.
So, when it comes to getting a loan with a low deposit – it does pay to shop around, not only to find a lender who offers low deposit loans but also to find the best deal.
So what are Low Equity Fees and Margins all about?
Due to the high risk for banks of low deposit loans, they are required to take out a lenders mortgage insurance to minimise their risk. The low equity fee covers the cost of this insurance.
Tips for ‘Getting to Yes’ with the bank for loans with less than 20% deposit
While it’s fair to say that it is difficult in the current climate to obtain a loan with less than 20% deposit via a bank, you may still be able to obtain one if you have a very strong application. To have a fighting chance, applicants will likely need to match the following criteria;
- Have excellent credit history
- Preferably a saved depositÂ
- Demonstrate good financial management and have excellent account conduct (no unauthorised overdrafts, dishonours)
- A very good surplus of funds once all expenses deducted
- Hardly any debtÂ
- Steady long-term employment/income
Get started with a plan for homeownership…
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Let’s look at getting a home loan with 5% deposit.
As mortgage brokers we are often asked what deposit is needed for a home loan.
The New Zealand banks are restricted by Reserve Bank rules (LVR rules) which means that they will normally ask for a 20% deposit; however they still have the ability to do some lending with as little as 5% deposit. They have always had the ability to do this, but in most cases they won’t unless the applicants are deemed as very attractive to the bank and there is good reason for not having the deposit available.
There are two specific types of loans where you can get a home loan with a 5% deposit;
1: First Home Loan
First Home Loan is exempt from the LVR rules introduced by The Reserve Bank.
From the 1st October 2019 the Government backed Welcome Home Loan has had a name change to First Home Loan. Another change is the deposit that was required for a Welcome Home Loan was 10% and now with the First Home Loan it has been reduced to 5%.
The First Home Loan is managed by Housing New Zealand and we have contacted them today to see if there are any other changes but they are not aware of any yet.
One issue with Welcome Home Loans and that will remain with First Home Loan is that not all banks have chosen to be part of this scheme.
Other issues are the house price caps and income caps which mean it is often not going to work.
Check our the website: CLICK HERE
Note: The announcement from the Government in the KiwiBuild reset lacked detail and Housing New Zealand staff who managed the Welcome Home Loans and First Home Loans knew very little about any of the changes. We will be checking and updating this post next week once the Housing New Zealand website is updated in case there are other changes that we are not aware of. We will also be checking with the banks to see if they will be offering the 5% deposit loans and what the individual bank criteria will be.
2: New Build Finance
5 Home Loan Deposit Qld
New Build Finance is also exempt from the LVR rules introduced by The Reserve Bank.
The banks are therefore able to offer home loans for new builds with less than 20% deposit.
Most banks will offer finance for both turn-key and progress payment builds with 10% deposit and a few will offer lending with a 5% deposit.
The issue with financing builds is the high risk for cost overruns. Most builds are financed with fixed price contracts, but often they have PC sums (price cost estimates) for some of the work including but not limited to the ground work. With lower deposits the banks want to eliminate the risk of cost overruns so will want a contract with no PC sums.
There can be other ways to get a low deposit home loan.
Home Loans 5 Year
You can get low deposit home loans with the banks at times, and some banks will allow you to use guarantors. The non-bank lenders will often do home loans with 10% deposit and they will generally allow a second mortgage which can be used to fund the balance of what would otherwise be your deposit.
Speak to your mortgage broker and they can help explain the options.
Are There Extra Costs?
Home Loan Mumbai
When you require a home loan with a 5% deposit there will be extra costs.
Welcome Home Loans (First Home Loans) charges a Lender’s Mortgage Insurance (LMI) premium of 1% of the loan account and the lender may also apply a loan application fee.
The banks will charge a low equity margin too which is an increase on the home loan interest rate. These vary in the way that they are calculated so you want to ensure that you select the right bank or that your mortgage broker knows about the differences too.
How To Get A Home Loan With A 5% Deposit
It is not easy to get a home loan with a 5% deposit, but it may be possible.
The easiest way to get started is to complete an online application (use the link below) and one of our team can check before discussing with you.
It costs you nothing to assess your situation, so why not find out today.