Low deposit home loan (5%)

Hi,

We are planning to buy an apartment early next year. We started looking at different apartments and researching on the process of buying a property. We learned a lot in the past 1 month.

For context, we are first home buyers in Melbourne VIC, and only have 5% deposit. We are looking at buying less than 600k property as PPR, to take advantage of the First Home Buyer stamp duty exemption. We are PR, not citizens, so we dont qualify for the FHLDS of the government.

Some of the things we learned so far:

- most lenders no longer offer home loans with 5% deposit and capitalised LMI, bringing the LVR to 97%. (Apparently, this stopped 3 years ago). Now you will need 5% deposit + LMI, so technically 8% of the property's value.
Question: We were told that BankWest can still lend at 97% LVR. Are there any other lenders that allow this?

- most lenders don't accept 5% deposit in the blacklisted postcodes (high density and high risk). Since we want to buy an apartment, we need to avoid these areas.
3000 Melbourne VIC
3004 St Kilda Rd VIC
3006 South Bank, South Wharf VIC
3008 Docklands VIC
3067 Abbotsford VIC
Question: Are there lenders who still allow 5% deposit in these postcodes?

- some lenders don't accept 5% deposit in the rest of the postcodes, other than the 5 blacklisted postcodes, if the building has more than 50 units. (As per ME Bank)
Question: Is this true for most lenders?

- most lenders allow 5% deposit only if the apartment is 50 sqm or bigger. Not a problem, we are looking at 2 bedroom units which is usually around 70 sqm.


With the restrictions on low deposit home loans for apartments, it looks like it will be difficult for us to buy a unit in a relatively new building (less than 5 yrs old), because most of the new buildings are more than 50 units. We are looking at the inner eastern suburbs - Richmond and surrounding areas.

Do we have hope, or is it close to NIL?

 

Maybe, although you might have high interest rate and large amount of Mortgage Insurance (gets added to the loan, is not an upfront cost) but just because you can doesn't mean you should. Do you need to buy now or could you afford to wait and save another 5% or so?

 

If you can buy a brand new apartment (you're the first people to live in it), you'd possibly qualify for the FHLDS. With this all you need is a 5% deposit plus about $3k for costs.

Unfortunately there's currently no places available for established property. There will likely be another allocation of places next July but it wouldn't surprise me if these also only go to new property only.

The locations you've mentioned are a concern. Personally I wouldn't buy a property there. These locations are probably the most likely to drop in value in Melbourne for the foreseeable future. If you do want to purchase in these locations, you're probably better off saving at least 12% of the purchase price (this will cover a 10% deposit & LMI, assuming you don't have to pay stamp duty).

Realistically there's a reason why 95% loans are very difficult to find and they are expense. Given the markets you describe are unlikely to increase in value, perhaps take some extra time to save a bit more?

 

Some good points above.

In addition - when you see lenders advertise 95% loans....it's not often a case of you chipping in 5% and they lend the other 95%

Most of these loans include Lenders Mortgage Insurance (LMI) so in reality - it's probably more like a 91% loan with LMI added on top to bring it up to 95%

This means the borrower chips in 9% rather than 5%

Cheers

Jamie