95% Home Loans Make Comeback
Greater competition between banks and other lenders for home loan clients is leading to a relaxing of some lending criteria, something that has paved the way for a return of the 95% home loan in recent weeks.
Low deposit options all but dried up during the Global Financial Crisis (GFC), leaving borrowers to pull together deposits of 10% or more, often all from genuine savings.
However, there are now a number of 95% home loan options available, as long as the applicant can show a minimum of 3 months savings for their deposit.
Who do 95% loans suit?
95% home loans are often particularly suitable for first home buyers, who may not have had the chance to save a larger deposit but have a good paying job. They may also suit people re-entering the market.
What about LMI?
Lenders Mortgage Insurance, or LMI, will be payable on a 95% loan or indeed or pretty much any loan greater than 80% of the value of the property. However, you may be able to capitalise LMI into your loan, taking your overall loan to 97% (95% against the property and around 2% LMI). There are a variety of different names for LMI depending on the lender so it’s important to check what term is being used in your specific situation.
What should I be aware of?
If you are considering making use of a 95% home loan, you will need to make sure you understand the requirements and conditions on that loan. These will differ between lenders but may include:
- Restrictions on the type of property you purchase.
- Restrictions on the location of the property you purchase.
- A deposit that includes some genuine savings (in most cases around 5% of the purchase price of the property).
- All lenders are very specific as to what they require in terms of genuine savings. It is important to understand this fully to ensure the criteria are met prior to loan lodgement.
- Credit history needs to be totally clean, i.e. no defaults – even if they are paid and for smaller amounts.
- Not available for low-doc clients, i.e. all income needs to be fully verified through the lender’s usual process.