For many Australians, saving a property deposit can feel like a moving target.
You save more, but property prices move. Or perhaps you're simply ready to buy and don't want to wait several more years to build a larger deposit.
You may finally have a reasonable deposit, only to discover that borrowing above 80% of the property's value could mean paying thousands of dollars in Lenders Mortgage Insurance (LMI).
But having less than a 20% deposit doesn't automatically mean you need to put your plans on hold.
At SW Brokerage, part of our role is looking beyond the obvious lending options. As a brokerage with access to more than 60 lenders, we can help you explore your options earlier than you might think.
Depending on your circumstances, a specialist product such as a Deposit Boost Loan could provide another potential pathway into the property market.
Have You Heard of a Deposit Boost Loan?
A Deposit Boost Loan is designed to help eligible borrowers who have the income and borrowing capacity to purchase a property but don't necessarily have the deposit required under a traditional lending structure.
Rather than having one large home loan above 80% LVR, the lending is split into two separate facilities.
The first is the primary home loan of up to 80% of the property's value. It has a 30-year loan term, principal-and-interest repayments, and features including offset and redraw.
The second is the Deposit Boost Loan, secured by a second mortgage. It can provide additional funding required to complete the purchase, has a 15-year term and is repaid on a principal-and-interest basis.
Depending on eligibility and the lender's criteria, the combined facilities can provide lending of up to 100% of the property's value.
In simple terms, rather than waiting until you've accumulated the entire deposit traditionally required, the Deposit Boost structure may help bridge some or all of that gap.
Could It Help You Avoid Traditional LMI?
Potentially — and this is another feature that may make the product worth investigating.
Higher-LVR home loans will commonly involve Lenders Mortgage Insurance (LMI). While the borrower generally pays the premium, LMI protects the lender rather than the borrower.
The Deposit Boost product takes a different approach, using a Low Deposit Premium (LDP) rather than traditional LMI.
For eligible like-for-like loans at 85% LVR and above, the product offers a savings guarantee on the upfront cost compared with LMI, subject to the relevant terms and conditions.
The lender's material provides an example:
For a $1.2 million property purchase with $170,000 in savings, the Deposit Boost scenario had an LDP of $20,400, compared with an LMI premium of $37,878 in the alternative lending scenario.
That's a difference of more than $17,000 in upfront costs in that particular example.
Of course, this is one example and isn't an indication of what every borrower will save. Your actual costs will depend on your individual circumstances, property, loan amount, lender and available alternatives.
Who Might a Deposit Boost Loan Suit?
This isn't simply a "low deposit home loan" for anyone who hasn't saved enough.
It's designed for borrowers who can otherwise demonstrate a strong financial position and meet the lender's eligibility requirements.
It may be worth investigating if you're in a situation such as:
You're $30,000–$50,000 short of your desired deposit. You want to purchase above the property-price limits of a government scheme. Your partner is on a visa, which may create limitations with certain government schemes. You've previously owned property and therefore may not qualify for some first-home-buyer options. You're looking to purchase an investment property with less than a 20% deposit.
The product is targeted towards prime borrowers, with lending criteria that can include credit conduct, genuine savings, income, existing debt and employment history.
So, having a smaller deposit alone doesn't mean you'll qualify.
Why Not Simply Keep Saving?
For some people, continuing to save will absolutely be the right strategy.
But it's worth understanding the alternatives before automatically deciding to wait another 12 or 24 months.
If you're already earning a strong income, have demonstrated good savings habits and can comfortably service a home loan, the question becomes whether waiting to accumulate a larger deposit is actually necessary.
There can also be a trade-off.
While you're saving, you may still be paying rent, and the price of the type of property you're trying to purchase may change.
That doesn't mean buying sooner is automatically better. It means the decision should be based on the numbers and your individual circumstances, rather than assuming a 20% deposit is your only option.
Why Use SW Brokerage?
This is where working with a mortgage broker can make a significant difference.
At SW Brokerage, we're not simply here to find you a home loan and tell you the interest rate.
We look at the bigger picture.
Where are you now? What are you trying to achieve? What's preventing you from getting there? And what lending strategies may actually be available to you?
Sometimes the answer will be a traditional home loan with a major bank.
Sometimes a government scheme may provide the best pathway.
Sometimes the right decision will be to continue saving.
And for an eligible borrower, a specialist structure such as a Deposit Boost Loan could provide an alternative they didn't realise existed.
Our job is to compare those pathways, explain how they work and help you understand the costs, repayments, risks and trade-offs before you make a decision.
Don't Assume You Need a 20% Deposit
If you've got a strong income and borrowing position but your deposit is holding you back, there may be more options available than you think.
Talk to SW Brokerage about your options and find out what pathways may be available for your circumstances.
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