Banks look for security when lending. They assess income, check liabilities and any other commitments to be sure that repayments can be met. They also look at the debt level against any property being offered as security. If the amount of debt is above 80% of the property value, they rely on mortgage insurance to protect themselves against any future losses.
Mortgage insurers charge a premium to the applicant for this service, which only protects the lender. Mortgage insurers will assess the applicant and will look for genuine savings, a secure employment position, evidence of good account keeping, and may factor in a higher cost of living than in non-insured loan ‘just in case’.
For applicants wanting to save the cost of mortgage insurance or not fitting into the strict mortgage insurance assessment criteria, there are loan products which can provide up to 100% of the property value without mortgage insurance. A gift or family security support may be given. For example, 20% of the value of the home may be gifted as a cash sum. In this case the lender usually insists on the amount to be given as a non-repayable gift.
Alternatively, if you are unable to make repayments on the whole loan amount, family members may also offer personal surplus income as a means of making payments manageable.
The most common approach is for extra security to be given in the form of a mortgage over another family member’s home. This may even work with an existing mortgage over the family member’s home. They don’t need to refinance or change their lending institution and nor is the applicants restricted to use the same lender.
Applicants may also borrow more than the total purchase property value, enabling them to pay out existing personal loans, credit cards or purchase furniture and assist with moving costs. A combination of security and serviceability support may also be acceptable to lenders.
Many lenders call this a ‘Family Support Package’, or ‘Family Guarantee’ which is a flexible home loan option allowing applicants to enter the property market sooner.
This allows applicants to;
- borrow more funds than they may have been eligible for otherwise
- enjoy a sense of independence and financial security having purchased their own property
- purchase the property they want rather than having to settle for a cheaper alternative
- choose from a wide range of competitive loan options
- avoid lenders mortgage insurance (LMI), this can amount to a saving of up to several thousand dollars
- purchase sooner rather than later, capitalising on current market conditions