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Despite the stereotype that millennials are all about travel and smashed avocados, a surprising number of this generation consider home ownership important. The desire to own a home among 20-to-30 year-olds is placed as high as 94% by Genworth’s Millennial Home Ownership survey and 85% by the Vice Millennial Money survey.
But the aspiration to own a home and the reality of saving year-after-year for a deposit is never a natural balance. While record-low interest rates are an enormous help with servicing a mortgage, the same can’t be said for helping build a healthy savings account. What can assist is knowing that a 20% deposit is not your only option for securing a home loan. Here we look at what other options are available.
Keep in mind that to qualify for the suggestions below, lenders will want to know your financial position is secure. They will want to see a stable employment history, genuine savings and an excellent credit score. If you have too many debts, such as multiple credit cards, car loan or personal loans, this may affect your chances of qualifying.
Get it right from the start with professional help.
LMI can help you get into the property market sooner with a deposit as low as 5% of the purchase price.
Lenders Mortgage Insurance
Lenders Mortgage Insurance (LMI) can help you get into the property market sooner with a deposit as low as 5% of the purchase price. Because LMI allows for a smaller deposit and a larger loan ratio, it gives you the means to buy the property you want rather than missing out.
The cost of LMI varies, depending on the size of your deposit and the value of the property. LMI is paid upon funding of your loan and added to the total loan amount. It becomes payable throughout the loan period and therefore incurs interest.
If you choose to access a lower deposit home loan needing LMI, ask a Yellow Brick Road mortgage broker to talk you through the pros and cons.
Family Guarantee Loan
If you have a family member willing to act as a guarantor on your home loan, you can potentially borrow up to 100% of the purchase price using a family guarantee loan. This solution avoids the need for you to pay Lender’s Mortgage Insurance.
A family guarantee loan allows the equity in your guarantor’s property to be used as security on a home loan. The security on the new loan can be split, and the guarantee limited to a portion, which is then added to your deposit amount.
To find out if a family guarantee loan is right for your situation, we advise contacting your mortgage broker.
According to the Vice Millennial Money Survey, approx. 69% of a millennial’s disposable income goes on unnecessary pleasures like alcohol, takeaway food and partying. Imagine how much you could save by prioritising ‘needs’ over ‘wants’ and using a budget to keep track of your discretional spending.
Lower your home loan deposit target by rentvesting: buying a cheaper property in an affordable suburb but continuing as a renter in your current location. It might be just the solution you’re looking for if you’re among the 48% of millennials, who the Vice survey found, would rather rent for longer and be closer to the things they need. It provides the flexibility to keep living in an area you’ve grown accustomed to while using rental income to pay off your investment property.
To get the most out of rentvesting, approach the purchase of your investment property with a clear strategy. You want your investment to deliver positive returns, so look for suburbs that have good long-term growth prospects and plenty of tenant appeal.
As with all these options, be sure rentvesting makes sense financially before you proceed. Talk to your Yellow Brick Road mortgage broker about your plans, and we can advise you on the best way forward.
- Useful reading: Motivation to Save and Achieve Your Deposit