No Deposit Home Loans
A few years ago, many of us would have had a
light chuckle to ourselves if someone mentioned
that you could borrow money to buy a house with
only the promise of solid future earnings. But
today this is a regular occurrence. Many of the
industry’s non-conforming lenders are selling
these financial products to many happy
consumers, with most of the major banks avoiding
this riskier route.
Ideally, the individuals set to gain from this
product have high incomes in industries with
high job security. With this loan you are
presuming that the benefits of immediate
ownership and debt outweigh the costs of
renting. This may not always be the case
however. The risk to the lender is greater and
so you will pay a premium interest rate for the
privilege, usually about 2% higher than the
current market rate.
With this is mind, it may be time to clean the
dust of the old mortgage calculator and assess
the long term financial gain or speak to a
financial consultant to establish whether this
is a sound option for you, and for many people
it can be.
Of course, there is no such thing as a free
lunch and strictly speaking, no deposit means
“with enough money to cover initial expenses”
such as stamp duty, loan fees and mortgage
insurance. If you are lucky enough to be
eligible for a government first home buyers’
grant, you may have most of these expenses paid
for you.
The main point with this type of loan is that to
really win you are betting that your salary will
be increasing steadily over the term of the
loan. This income will then be able to be
ploughed back into the loan to build some
equity.
In many countries, such as Australia, no deposit
home loans are becoming less attractive due to
the state of the market. Lenders are becoming
more stringent with their loan acceptance
policies, indicating a potential interest rate
rise and thus much greater risk to those with no
deposit home loans. The lender may also have
harsh exit fees, running into thousands of
dollars so read carefully before you sign on the
dotted line.
Many lenders also will only lend for specific
types of property, leaving well alone riskier
properties in regional areas and places with no
established resale value.
Here are a few tips to help you manage your
financial position.
- Allow for higher interest rates when budgeting
for repayments over the next 2-3 years,
- Ensure personal debts like credit cards and
car loans are under control before committing to
a property loan, and
- Make extra repayments where possible to reduce
your exposure to higher rates and falling
prices.
This article is the property of
www.1st-in-homeloans.com, which has been
offering home mortgage services since 2002. To
find out more visit
www.1st-in-homeloans.com
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