With property prices rising in Australia, home ownership is becoming harder, especially for those who haven’t saved sufficiently for a home deposit. Some young adults are fortunate that they have parents who offer them a deposit amount.
But what about those with hardly any savings? Is it still possible for them to buy a house with no deposit? The answer is yes. Here are some viable options to purchase homes without deposits.
Make Use of the First Home Owner Grant
In Australia, the federal government has set up the First Home Owner Grant that provides first time home buyers with a lump sum payment of $7000, regardless of the value of the property. In addition, eligible first home buyers may also get extra grants, bonuses and tax breaks or are exempted from stamp duties, depending on which state they are in. Use this grant as part of a home deposit.
Borrow Money From Parents to Buy a House
If a first time home buyer uses the First Home Owner Grant and borrows another decent amount from parents or relatives, he will be able to raise a small home deposit to buy a cheaper and smaller first home. If he can borrow enough to cover more than 20% of the value of the house, it will save him the cost of a mortgage insurance, which can go into several thousands of dollars.
There is nothing wrong with borrowing money from relatives to buy a house. Just be sure all parties involved have a clear understanding of when loan repayments are expected.
Get a No-Deposit Home Loan
In general, a no-deposit home loan is a 100% loan for the price of the property. Some lenders even lend more to allow borrowers to pay for other related costs of buying a house such as stamp duties and legal fees. No-deposit home loans are more suitable when property prices are rising as they help home buyers build equity in their homes.
While no-deposit home loans appear to be the ideal solution for people to purchase their first homes faster, they come with certain clear disadvantages. Their interest rates and mortgage establishment fees are higher and they definitely require borrowers to take up mortgage insurance. Moreover, the criteria for getting a no-deposit home loan are stricter too. Borrowers typically must have a record of permanent employment with a steady income.
Rent to Buy Scheme Explained
Another option for buying a house with no deposit is through a rent to buy scheme, sometimes also known as a vendor financing scheme. It allows the potential buyer of the house to rent it and make payments towards the purchase of the house at an agreed price and date in the future.
However, many consumer groups have voiced strong objections against rent to buy or vendor financing schemes. Firstly, the rent is much higher than normal rent. Secondly, the property is overpriced too. Unscrupulous schemers will also often lure prospective buyers with unbelievable promises – guaranteed home loans, vouchers and free gifts. If a rent to buy scheme sounds too good to be true, it most likely is.
It certainly is possible to buy a house with very small or no deposits. The First Home Owner Grant can boost efforts to save for a home deposit. So can borrowing money from parents or relatives. Another commonly used option is a no-deposit home loan, which can be very costly in the long run, though. Those looking into rent to buy schemes should be very cautious and understand the risks involved.
Found this article useful? Read also Buying a House With Low Income, Buying a House as an Investment and Saving Money to Buy a House.
References:
Derkley, Karin. Buying & Selling Your Home for Dummies. Queensland: Wiley Publishing Australia, 2006.
Thomson, Jimmy. The Ultimate Guide to Buying & Renting Houses & Apartments. New South Wales: Fairfax Books, 2008.
First Home Owner Grant Website
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