Campbelltown resident, Jason asks
“I currently work as a chef in a small cafe and am interested in purchasing a property valued at $545,000 but don’t yet have a deposit. Is it possible to obtain a no deposit homeloan?”
Thanks for the question Jason. It’s certainly one that we’re asked frequently here at Mortgage World, especially since the global financial crisis back in 2008. A lot has changed since then, which I’m sure you’re well aware of. Here’s some advice that is sure to answer your question.
In short yes, you certainly can borrow 100% of the purchase price of the property, provided you have a guarantor. This guarantor is generally a family member that owns their own property, has sufficient equity in that property and is willing to offer their property as a second security for your loan.
This should not be considered as a re-mortgage of that property and you will notice different lenders will term this type of loan differently, such as a family pledge or family equity loan. Different lenders will have varying conditions and eligibility criteria, and it really depends on the lender’s specific requirements. For example, if parents are offering their property as security and they have a mortgage with lender A, and their son or daughter wanted to use another lender, lender B, this would be acceptable, other lenders may require that the guarantor’s mortgage and new loans be consolidated with just the one lender.
Is it only family, or can a close friend act as a guarantor for you?
This is a great question, and historically non-family members have been considered, however with increasing policy restrictions, it has become uncommon for lenders to consider non-family members as guarantors due to the increased risk involved as there is no direct relationship or common vested interest.
We are often asked if other assets apart from a property, such as boats or sheds can be used as second security and unfortunately, banks will not accept these types of assets but will consider cash banked as a term deposit. Family members who have surplus cash may consider a term deposit as a more favourable alternative to offering their property as security. In terms of the application of a family pledge or family equity-type residential home loan, commercial property is not accepted, only residential property or cash in a term deposit are considered as acceptable guarantor security deposits or collateral security.
You may wonder if there are any exceptions to the rule, in terms of being able to borrow 100% without someone acting as a guarantor. For residential property, the answer would have to be no, not since the global financial crisis, most lenders will not finance 100% of a residential property value without some sort of security.
With regards to business property finance, if you are self-employed, we have a lender that will offer 100% finance on the value of a unencumbered residential property if the intended use is for commercial or business purposes.
An example of this scenario would be if the applicant had an unencumbered property valued at $500,000 and they were willing to put their residential property up as security, then it may be possible to borrow 100% of the value of the residential property.
If this person were self-employed and would like to finance commercial property such as an office suite or factory unit at residential interest rates and residential loan terms of 30 years as opposed to the typical commercial loan term of 15 years, they would use the residential loan funds to fund this purchase.
Does 100% lending still happen?
While 100% lending is uncommon since the global financial crisis, it is possible to finance more than 100%, say 110% of the purchase price if you have a guarantor. This would cover the purchase price, stamp duty and other associated loan costs. Some lenders in addition to the purchase price will approve debt consolidation or home improvements as part of the guaranteed loan.
There are lenders who will finance up to $50,000 above the loan amount to use for renovations, a feature usually for first time home buyers. An example would be a property valued at $500,000 and the loan is approved at $550,000, so $50,000 extra is approved to commence renovations on occupation. A guarantor, usually a relative, who is willing to offer second security will remain a condition of loan approval in order to receive more than 100% finance. It’s important to note that some lenders will not accept guarantors who are retired to provide their unoccupied or occupied property as security.
When choosing a loan organisation or provider be cautious if they are openly advertising 100% loans without a guarantor. Unless this is a specific offer to an occupation, for example, doctors, you really do want to be sure you are working with reputable industry professionals.
Need further help?
If you’re interested in speaking with us about a no deposit home loan then get in touch. We have a range of various options to suit your needs. Call us today and speak to either myself (Patrick) or one of our loan advisors.
We look forward to speaking with you.