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When it comes to buying a house and putting down the deposit, there are many options to take in terms of finance.
Although many institutions may recommend securing a guarantor loan or even buying the residence with no down payment, there is another option. The other option is to secure a personal loan in order to finance the down payment.
While this form of financing is only available to those who meet select criteria and may in fact end up costing more, it is a viable option for homebuyers to consider.
How do personal loans work?
The first step in securing this type of finance is to have a broker or lender complete a preliminary assessment of the situation. During this assessment, options will be explored such as finding a guarantor or applying for a 95% loan.
If these options aren’t applicable to your situation, a personal line of credit will be used in order to fund the deposit. Once approved, the home lending scheme needs to be submitted to be pre-approved.
As with traditional deposits, you will be able to buy at an auction or through a private sale under this option, so long as you have a valid pre-approval. It is worth noting that brokers and lenders will suggest buying privately with a cooling-off period over purchasing at an auction.
How to qualify for a personal loan?
When it comes to this particular type of lending, those who receive approval must meet a selection of strict criteria for both home and personal loans. To be eligible, you must have a high income in order to afford both repayments and less than $10,000 in existing debt.
Other selection criteria include:
- Clear credit history.
- Proven rental history.
- Some savings to make up any perceived or real shortfalls.
What are the savings requirements?
When it comes to how much savings a borrower may need, there is no concrete figure. Instead, lenders wish to see each individual borrower contributing something to the process of purchasing a house.
High-income earners will generally be required to contribute a few thousand dollars. Whereas lower-income earners may need to have at least 5% of the deposit. This is because if you don’t have a high income, you won’t be able to afford the repayments.
Many lenders will also require individuals to have 5% of the purchase price in genuine savings. This is because more banks will offer you the financing. Additionally, you will also be able to afford other costs such as stamp duty and any legal fees.
What is the cost of a personal loan?
One of the perceived downsides to this type of lending is the fact that it will cost you considerably more in interest. In some cases, the monetary amount may need to be approved by a specialist lender at higher interest rates, however, this is not the reality for everyone.
In fact, the strength of your overall monetary position will determine the interest rate of the line of credit. In addition, there are other costs to consider such as establishment fees, monthly fees, and even early repayment fees if you opt for a fixed rate.
It’s worth noting that this option has very short terms and is only a small part of the total debt. Therefore, the higher interest rate doesn’t have as big an effect as it would if the entire lending was at that rate.
Making the repayments
Securing a lend of this variety over a term of five years will, on average, cost around $60 a week for every $10,000 that you intend to borrow. With this in mind, $20,000 may be manageable for those with a high salary.
Most homebuyers who secure a lend of this variety will try to pay off the loan before making extra repayments on the home loan. This is because a mortgage will generally have lower interest rates and if not, you can do some research looking into cheaper rates.
Purchasing a home
Purchasing a residence should rank among the most exciting times in a person’s life. However, this excitement is often overshadowed by the stress of securing the money necessary to buy the dream dwelling in the dream street.
Instead of settling, it’s important to research all the viable options in terms of lines of credit. This way, securing your dream property is within reach, without sending you broke of course! It is worth noting that no financing option should be entered into lightly, research is key.
