If you’re saving for a property, it can be difficult to know when you
have enough money to seriously go looking for your dream home. After
all, a home loan is usually the biggest financial commitment you will
make. Logic suggests you should save as much money as possible before
you start looking for a property. So how much money do you really need
to put a deposit on a property these days?
Everyone’s financial and life situation is different, along with their purchase requirements. However, there are certain considerations and general rules that will help you know when you’re financially ready to research a suitable professional lending institution to assist with your purchase.
Most lenders are generally willing to finance home purchases up to 95% of the property value, provided you have an exceptionally strong employment and savings / credit history, along with proof of a consistent savings plan. The loan amount will also strongly influence the lender’s decision. So if the property value is $380,000, you could obtain a home loan with a deposit of $19,000. However, you will also need to purchase mortgage insurance with less than 20% deposit.
If your employment and savings / credit history is not so strong, or you don’t have the ability to service the loan repayments, the lending institution would generally only lend up to 80% of the property value.
Mortgage Insurance
Generally, mortgage insurance is applicable for home loans above 80% of property value. The mortgage insurance company will compensate the lending institution for any losses incurred if you fail to make your home loan repayments, and if they can’t recoup from the sale of the property.
Say your home value is $400,000 and you borrowed $380,000. If you have only repaid $40,000 and can no longer make further repayments due to financial woes, the lending institution is $340,000 in debit. When they take possession of your home and put it on the market, they may only be able to sell for $330,000. Therefore, they have incurred a $10,000 loss on your home loan. This amount does not even include the interest they would have received on your loan.
Mortgage insurance can be paid upfront or included as part of your home loan. If including in your home loan, it’s important to remember that borrowing a higher amount not only means repaying that higher amount, but also repaying a higher amount of interest.
If your preference is not to pay additional money for mortgage insurance, you could have a guarantor for your home loan. A guarantor allows the equity in their own property to be used as additional security for your home loan. Your property will still be the primary security though. The most common example of this is a parent using their property as security for their child’s home loan. Be mindful though, if you fail to make your repayments, your parents could be forced to sell their property to repay your loan.
Home Loan Serviceability
Another important factor to consider when determining how much deposit you will need is your home loan repayment serviceability. This is your ability to comfortably make your repayments each month for the duration of your home loan, based upon your income, expenses and other commitments. This generates a figure which is known as your ‘debt service ratio’. Having a basic knowledge of how your serviceability is calculated can help you to understand if you are ready to purchase a property. You may be able to comfortably make your repayments now, however what happens if there is an interest rate rise, or your expenses increase dramatically.
Elite Wealth Creators have been involved in the property and finance industry for over 20 years. Our Investment Property Strategists deliver investment grade properties to the investment market and mediate between the developer and the investor. We also assist first home buyers in purchasing their first home in QLD through our house and land packages – this includes receiving $20,000 cash back towards their mortgage by buying one of our full turn-key packages.
Our service will take you through the complete process of buying positive cash flow property, including:
• educating you on positive cash flow and the ability to pay your mortgage off years in advance
• saving you thousands of dollars in interest
• supporting you in the decision on which property to buy
• assisting in the organizing of your finances, if required
• preparing you for settlement of contracts
• liaising with other professional advisers on your behalf if required.
Our Strategists specialise in delivering quality positive cash flow property and also helping investors pay off their mortgage years in advance
http://www.
sales@elitewealthcreators.com
1800 GO ELITE
Everyone’s financial and life situation is different, along with their purchase requirements. However, there are certain considerations and general rules that will help you know when you’re financially ready to research a suitable professional lending institution to assist with your purchase.
Most lenders are generally willing to finance home purchases up to 95% of the property value, provided you have an exceptionally strong employment and savings / credit history, along with proof of a consistent savings plan. The loan amount will also strongly influence the lender’s decision. So if the property value is $380,000, you could obtain a home loan with a deposit of $19,000. However, you will also need to purchase mortgage insurance with less than 20% deposit.
If your employment and savings / credit history is not so strong, or you don’t have the ability to service the loan repayments, the lending institution would generally only lend up to 80% of the property value.
Mortgage Insurance
Generally, mortgage insurance is applicable for home loans above 80% of property value. The mortgage insurance company will compensate the lending institution for any losses incurred if you fail to make your home loan repayments, and if they can’t recoup from the sale of the property.
Say your home value is $400,000 and you borrowed $380,000. If you have only repaid $40,000 and can no longer make further repayments due to financial woes, the lending institution is $340,000 in debit. When they take possession of your home and put it on the market, they may only be able to sell for $330,000. Therefore, they have incurred a $10,000 loss on your home loan. This amount does not even include the interest they would have received on your loan.
Mortgage insurance can be paid upfront or included as part of your home loan. If including in your home loan, it’s important to remember that borrowing a higher amount not only means repaying that higher amount, but also repaying a higher amount of interest.
If your preference is not to pay additional money for mortgage insurance, you could have a guarantor for your home loan. A guarantor allows the equity in their own property to be used as additional security for your home loan. Your property will still be the primary security though. The most common example of this is a parent using their property as security for their child’s home loan. Be mindful though, if you fail to make your repayments, your parents could be forced to sell their property to repay your loan.
Home Loan Serviceability
Another important factor to consider when determining how much deposit you will need is your home loan repayment serviceability. This is your ability to comfortably make your repayments each month for the duration of your home loan, based upon your income, expenses and other commitments. This generates a figure which is known as your ‘debt service ratio’. Having a basic knowledge of how your serviceability is calculated can help you to understand if you are ready to purchase a property. You may be able to comfortably make your repayments now, however what happens if there is an interest rate rise, or your expenses increase dramatically.
Elite Wealth Creators have been involved in the property and finance industry for over 20 years. Our Investment Property Strategists deliver investment grade properties to the investment market and mediate between the developer and the investor. We also assist first home buyers in purchasing their first home in QLD through our house and land packages – this includes receiving $20,000 cash back towards their mortgage by buying one of our full turn-key packages.
Our service will take you through the complete process of buying positive cash flow property, including:
• educating you on positive cash flow and the ability to pay your mortgage off years in advance
• saving you thousands of dollars in interest
• supporting you in the decision on which property to buy
• assisting in the organizing of your finances, if required
• preparing you for settlement of contracts
• liaising with other professional advisers on your behalf if required.
Our Strategists specialise in delivering quality positive cash flow property and also helping investors pay off their mortgage years in advance
http://www.
sales@elitewealthcreators.com
1800 GO ELITE
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