Australian Property Mortgage – How to obtain Approval for the 95% Home Loan
Investing in an Australian property is an overwhelming decision that must have to be considered carefully. If chosen properly, a property investment can provide significant financial benefits however, there are upfront costs and expenses that have to be taken into account before making the plunge. It also makes sense to be knowledgeable about Australian property mortgage and the steps in making an application.
What you should know about 95% home loans
The 95% Australian property mortgage is back in the market; however, it is relatively more difficult to get this loan approved compared to other home loans. If you borrow more than 90% of the market value of the property, the lender’s mortgage insurance (LMI) increases. You can save a considerable amount of money if you can manage to keep your loan for less than 90% of the market value of the property. On the other hand, if you are really serious about 95% Australian property mortgage, you need to ensure that you have the necessary qualifications.
Who can qualify for 95% home loans?
The first requirement is an unblemished credit history meaning that bills like rent, credit cards, personal loans and other indebtedness are paid on time. If you have a record of default in your credit history, you might not be able to borrow a home loan for more than 80% of the market value of the property. Majority of major lenders will require stable employment although there are certain exceptions on a case to case basis. This means that you must have a job for the last 6 to 12 months or you must have a good income that will allow you to pay the property mortgage. Some home loans have been declined because the borrower has recently changed jobs and is still in probationary employment.
Lenders would likely ask if you have a good asset position based on your age and income. You must also show proof that you have saved enough in the bank for 5% of the purchase price. On the other hand, if the 5% of purchase price came from personal loans and credit cards, there is a very likely chance that your application for Australian property mortgage will be disapproved. There are also instances when lenders would disapprove 95% home loans when the property is in a small town or a high rise unit in the central business district.
Why borrowing less than 80% of the property value is more cost effective
LMI is one-off insurance payment that is typically paid for a Loan to Value Ratio (LVR) of 80% and more. LMI can be avoided if you try to save 20% or more for the deposit or have someone act as a guarantor for your Australian property mortgage. Saving 20% for property deposit can be difficult but you can avoid the lender’s mortgage insurance. The amount of LMI can be staggering for a first time home buyer. For example if the property is worth $500,000 and you pay the deposit of $30,000, expect to pay $12,500 for LMI. If you save enough, you avoid this extra cost.
