Have you ever heard of a 'no deposit home loan?' If you told me, a couple of years ago, that you could get money for a loan with nothing but a guarantee of solid future earnings, I would have thought you were insane. But, nowadays, this is a common occurrence. While the major banks pass up taking risks like that, many newer an d more adventurous lenders are taking a chance with no deposit loans and the result is many new happy homeowners.
Usually, the people who will benefit from this kind of loan are those with high incomes in careers with good job security. The idea is that the costs of renting are less than the benefits of owning the home now and going into debt. This isn't always the way it's done. Sometimes, because of the high risk to the lender, there will be a premium interest rate of something like 2% or more than the current market rate.
Now, it might be a good idea to consider all of this. You might want to find your old mortgage calculator and look at the long-term finances, or talk with a financial consultant and see if this might be a good idea for you. For lots of people, this is a great way to go.
As we all know, nothing in life is free, and you will have to pay some initial expenses like stamp duty, mortgage insurance and loan fees. If you can get a first-time buyers' grant from the government, you can get around paying these expenses too.
An important thing to keep in mind is that you must show that your income will be increasing over the term of the loan, whether it's a va loan or another offline or online loan. If your income will be increasing over the course of the loan, you can put that income back into it and build equity.
The state of the market has an influence on the availability of these loans. For example, in Australia, these no-deposit loans are getting rare because of the market. Lenders are choosier and stricter with their loan policies, and may raise interest rates, putting those with no-deposit loans in greater risk. You should also check and make sure the lender does not have exit fees that are too harsh. You have to really search the fine print.
Lenders will often offer no-deposit loans on only certain types of properties, or properties in certain areas, depending on risk or resale value.
Here are a few things you can do when considering your future finances:
- When working out your budget for the next few years, allow for the possible rise in interest rates. This way, you won't be caught unawares.
- Make sure that all your other debts are under control and manageable before committing to another. This is a big one!
- Whenever you can, pay extra on your loans. This will safeguard you against falling prices and rising rates.
All the above are unique ways to handle the issue of no-deposit home loans and if this is the right alternative for you. If you can apply this information to your personal situation to alleviate the home loan option, do so and expect that you'll make the right decision.
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