The 20 per cent deposit is one of the golden rules when it comes to buying a residential property. But many people manage to secure a home loan with a deposit of less than 20 per cent, and that all comes down to what the lender allows.
Depending on your individual situation, there are pros to buying a home with a smaller deposit. If you have solid savings but not quite enough to hit the recommended 80 per cent loan to value ratio (LVR), you could get your foot on the property ladder earlier.
For owner-occupiers, this could mean a world of difference if you’re paying hundreds in rent every week or if you have a baby on the way. For investors, the earlier you buy a property, the more potential capital growth you may be able to capture if the market is strong.
But on the flip side, entering the property market with a higher LVR generally means you’ll need to pay lender’s mortgage insurance (LMI). This insures the lender if you, the borrower, default on the loan. While the exact amount will depend on how much you’re borrowing and other factors, LMI could set you back thousands.
While LMI can be expensive, it’s worth noting that it is possible to capitalise the premium payment. This simply means it can be added to your loan amount and paid off along with your regular mortgage repayments, so you don’t have to fork out another small fortune upfront.
If you’re thinking about buying a home to live in, here are five top-rated home loans with a deposit requirement of 10 per cent or less.