How to buy a property without a 20% deposit?

When you consider that a small apartment in Melbourne could cost half a million dollars now, saving a 20% deposit to buy that apartment, you need to come out with $100,000 in your savings account. It can seem like a very challenging task.

That’s where lenders mortgage insurance (LMI) can help.

LMI can be the extra cost to the buyer but it offers the buyer great opportunity to get into the property market as earlier as possible and without saving up the entire 20% deposit.

What is LMI do? LMI protects the lender, when a home loan goes into default, LMI guaranteeing that the lender will get its money back if the property needs to be sold and there is a shortfall in repaying the loan.

While a 20% deposit generally provides a good buffer against any drops in property value over the life of a loan, LMI can also provide the same protection, meaning borrowers can purchase property with a smaller deposit.

What’s in it for you? LMI maybe just another expense to the borrower but it gives the buyers great opportunity to enter the property market with as low as 5% deposit. For example, above, a $500,000 apartment, 20% deposit could be $100,000, but with LMI, the buyer can buy property with a low deposit as $25,000.

And, if the property market is very hot and property price is rising rapidly, using LMI is another cheapest option to go so that the buyer can buy now without saving a bigger deposit. The time it takes to save the 20% deposit amount, the property prices may have gone up plus the rental you are paying while saving the deposit, when we added up those two costs, it may cost you more than what you might pay for the LMI so it makes good financial sense to purchase earlier with LMI.

What you need to know? The LMI premium is generally a one-off payment, but you may be able included them into the loan amount so that you are paying for it month-by-month along with your mortgage.

There can be a big difference between premiums paid if you have, for example, a 10% deposit saved compared with a 5% deposit, so it may well be worth trying to gather together some extra funds, even if you despair of reaching the full 20%.

Come to speak to Kevin today on 0415820016 to investigating your options and working out whether it is better to buy now with LMI or save an extra deposit.