10% Deposit Home Loans
In fact, if you meet the following criteria you may be eligible to successfully apply for a home loan with as little as a 5% deposit home loan.
First Home Loan
The criteria are listed below along with an easy guide to check at a glance if you are eligible to apply.
- Income cap – You can have a maximum yearly income of up to $85,000 (before tax) for 1 person. Or a combined maximum yearly income of $130,000 (before tax) for 2 or more people.
- Minimum deposit – You will need a minimum 5% of the purchase price of the house you are wishing to buy.
- House price cap – The price of the house you are buying with a First Home Loan must be less than the regional house price cap.
- First home buyer – Or a previous home owner, in a similar financial position to a typical first home buyer.
For more information visit Kāinga Ora – Homes and Communities.
5% Deposit Home Loan
Lenders may require additional information in relation to your savings history and your current employment. There may also be some restrictions on the type of property being purchased.
One option available to borrowers with a 5% deposit is to top it up by another 5% to make it a 10% deposit . The top-up can be by way of a gift from family or even a loan that needs to be repaid.As long as 5% is saved as required by the lender, the lender generally accepts the additional deposit as long as there is a straightforward explanation on the source.
Gifted Deposit
Contribution to the deposit from family members can be in the form of a gift or it can be an interest-free loan. The lender has to be informed of the source of the additional deposit.
You should talk to your accountant about the possible tax implications if you are gifted a deposit for you and the family member lending you the deposit. You should seek advice from your solicitor of the property relationship act and its effect on the gifted deposit. Your solicitor should also provide you with a Deed of Debt (if the deposit has been borrowed from family) that is generally acceptable to the lenders.
Guarantor
Close family members also have the option to act as a guarantor. It is important for the guarantor to be in a healthy financial position. They should currently be working or be self-employed and have enough equity in their property to be able to guarantee up to 20% Close family members also have the option to act as a guarantor. It is important for the guarantor to be in a healthy financial position. They should currently be working or be self-employed and have enough equity in their property to be able to guarantee up to 20% of your mortgage. The combined value of the deposit guarantee and their mortgage should be under 80% of the value of their property. Once a guarantee of 20% is accepted, it is secured against the guarantor’s property. As a guarantor you do not need to provide any cash towards the property purchase but your property is used as security. The key is that the new loan is set up with the lender that holds your property.What are the Risks for the Guarantor?
You could potentially lose your property if the new borrower is in arrears with their loan. It is in your interest to monitor the loan you have guaranteed. Lenders do not like to wait but it is quite common that the borrower is almost 2-3 months behind in their mortgage repayments before a lender will issue a formal arrears notice.
The lender should also keep you in the loop about this development. If you have been monitoring the loan, you will be aware of the situation and try to remedy it soon enough to avoid a mortgagee sale. It takes about 4-5 months of loan arrears before the lender takes the property to a mortgagee sale. Loan documents generally do not specify which property will be sold first at the mortgagee sale; the lender will sell the other property first as that property makes up most of the new loan value. Lenders normally will help find a solution before the mortgagee sale is reached, especially when there is a guarantor property involved.
However, after selling the other property, if there is a shortfall in the mortgage arrears (which by this time will include unpaid interest, legal and administration costs) the lender will ask the guarantor to make up for the shortfall. How do you avoid this risk? We recommend talking with our insurance advisers in order to mitigate your risk and discuss your options.What if I want to sell my house?
The guarantor’s property will have a mortgage secured over it which is linked to the other property. If you want to sell or need to sell your property, the lender can transfer the security to another property you may own, or you can use some of the proceeds from the sale of your property to replace the deposit guarantee.How we can Help
We will ensure that the mortgage is manageable for the new borrowers. We cover possible risks for both you and the borrower. We work with the borrower towards reducing your guarantee within a manageable timeframe.Would you like to speak to one of our financial advisers over the phone? Just submit your details and we’ll be in touch shortly. You can also email us if you would prefer.
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