What do you do if you haven't saved that magical 20% deposit? There are options but make sure you know all the details before making a commitment.
Low deposit loans
Many lenders offer ‘low deposit’ home loans where you contribute as little as a 5% deposit. This sounds like a pretty good option but proceed with caution. Most lenders require you to take out mortgage insurance for loans with a less than 20% deposit. This additional cost can be significant. So make sure you check the fine print and do your sums. You may be better off continuing to save until you reach the 20% goal.
Some lenders may allow a family member to act as guarantor on your property purchase if you lack the requisite deposit. In a guarantor loan the equity built up in your guarantor’s property is used as additional security for your loan. This means the lender has a right to some or all of your guarantor’s property as an alternative to you providing a larger deposit. Be very careful when considering this option: family and money don’t always mix so seek independent financial advice before you or your guarantor make a commitment.
Low doc loans
Low doc loans are aimed at self-employed people who may find it difficult to supply adequate proof of earnings. You’ll still need 12 months’ worth of business activity statements, a letter from your accountant and evidence of other loans you currently have. Like the low deposit option, these loans often attract mortgage insurance and it can take longer to build up the equity in your property.
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