No Deposit Home Loans
by
Brad Slade
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.
________________________________
About The
Author
Brad Slade
More information available at http://members.ozemail.com.au/~lnart/
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