If you want to buy your first home but are struggling to save a 20% deposit, there are other options that may allow you to enter the market ahead of schedule.
1. Apply for a low-deposit loan. You may be able to qualify for a home loan with a deposit under 20%, depending on your scenario. You will probably have to pay lender's mortgage insurance (LMI), which is an insurance policy designed to protect the lender in the event the borrower defaults on their mortgage. However, this could still work out to be cheaper if it allows you to enter the market early, ahead of future price rises.
2. Use the First Home Guarantee. This is a federal government program that supports eligible first home buyers to purchase a property with just a 5% deposit, without having to pay LMI. But your income must be under $125,000 if you're applying as an individual or a combined $200,000 as a couple. Also, property price caps apply – your property must be valued under $900,000 if you're buying in Sydney and $750,000 in regional NSW.
3. Get help from the Bank of Mum & Dad. If your parents guarantee your home loan (using equity in their home as security), you could put down a 5% or even 0% deposit without having to pay LMI. But you and your parents should get legal advice before proceeding, as they will be legally liable for your mortgage – so if you default, the lender may seize their property.
4. Rentvest instead. If you can't afford to buy a property in your preferred location, you could rent there instead and buy an investment property in a lower-cost market. Assuming the investment property rises in value over the following years, you could eventually sell the property and use the proceeds to buy an owner-occupied home.
Yes, you may be able to buy your first home sooner than you realise. Click here to discuss your options.