Raising a home deposit can seem like an unachievable task. Luckily I know a couple hacks to help get you there sooner.
You’ve done your research and you’re ready to purchase your first home or investment property. Great! But then you see the deposit amount required and it just seems unreachable.
I understand – with rising home prices and higher costs of living, it’s getting more difficult to save for a home deposit, and you might find yourself thinking that you’ll ‘just rent forever’ (sound familiar?).
Fortunately, however, there are a couple of hacks that an aspiring purchaser can use to increase their deposit. Don’t forget that lenders will typically need to see evidence of a genuine savings habit, with a 5% deposit in genuine savings (savings held for at least three months) required before considering the below deposit sources.
Tips for homeowners
Equity in your current home or property portfolio
One of the most misunderstood sources of investment for growing wealth is the ability to use equity from your own home or investment property. If you already own a home and are looking to purchase your first investment property, you can draw on the equity in your current home to put towards a home deposit.
Home equity is a fantastic opportunity to access the funds needed for your next property purchase. To learn more about exactly how to use your home equity to invest, check out this article.
Tips for non-homeowners
Borrowing from the ‘Bank of Mum & Dad’
This refers to when a homebuyer’s parents loan them money for the balance of the deposit. The interest rate and terms are set between the buyer and their parents, and the parents’ loan amount is the only amount at risk.
If your parents don’t have the money in cash – that’s ok too! They can potentially refinance the equity in their home to provide the deposit. More information on this below!
Asking your parents to be guarantors
This involves your parents using part of the equity in their home to guarantee the balance of the deposit (equity is the difference between the current market value of your property and the amount remaining on your home loan).
In effect, the bank is lending the equity top up amount by using the equity from your parents’ home as a guarantee.
It’s important to note that this method can be risky for your parents – not only can they lose their guarantee amount if called on by the bank, but they could also be forced to sell their home. It also affects their ability to borrow to purchase an investment property for retirement.
That being said, it’s a great option to help you enter the property market if everyone does their homework, and you may also avoid paying lenders mortgage insurance.
Government Approved Incentives
Both state and federal governments provide incentives for first home buyers to purchase with a lower deposit – generally by providing a grant at settlement and/or guaranteeing the shortfall amount so you don’t have to pay Lenders Mortgage Insurance. These incentives change often – so if you’re not sure just ask Oli!
Alternative Lending Products
The home finance market is getting competitive with many providers now offering different schemes to help aspiring homebuyers get into the market sooner. These might be Rent to Own scheme (where you pay rent for a period of time whilst pre-negotiating an option to buy the home at the end of a set period), Co-Deposit schemes (where a private entity provides some of the deposit and takes an ownership stake in the property) and other financial products that allow you to reduce the amount of Lenders Mortgage Insurance payable.
Sound confusing? It can be – speak with Oli who can introduce you to a finance specialist in these fields.
Group Buying
Chances are you’ve bought items online as a group? Property can work the same. By getting some friends together and creating a legal entity with rules – you can pool your money and get into that property sooner. Of course – this comes with its risks. Speak with Oli if you’re unsure.
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SUMMARY
With rising home prices and higher costs of living, it’s getting more difficult to save for a home deposit, and you might find yourself thinking that you’ll ‘just rent forever’. Fortunately, however, there are a couple of hacks that aspiring purchasers can use to increase their deposit so they can purchase their first home or investment.
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