Dreaming of buying your first home but struggling to save for a deposit? You're not alone. With rising property prices and tighter lending criteria, it can feel like home ownership is slipping further out of reach.
The good news? There are still ways to make your property dream a reality—no cash deposit required. Here are four options that could help you take that important first step on the property ladder:
Tap into Existing Equity
If you already own a home or investment property, you might be sitting on a hidden asset: equity. This is the difference between your property's current value and how much you owe on your mortgage. Many lenders let you borrow against this equity to help fund your next property purchase.
For example, you could borrow up to 95% of your home's value to invest in another property. However, keep in mind that borrowing more than 80% usually means you'll need to pay Lenders Mortgage Insurance (LMI). Do the maths to ensure it’s the right move for you.
Pros:
- Use what you already own to grow your property portfolio.
- Stay in control of your purchase without involving others.
Cons:
- Equity isn't endless and can fluctuate with market conditions.
- Using equity too frequently may leave you financially stretched.
Consider a Guarantor Loan
No equity? A family member with equity in their own property can act as your guarantor. This means they offer a "limited guarantee" to cover part of your loan, usually up to 20% of the property’s purchase price.
This option can help you avoid paying LMI and may make it easier to secure a loan. However, it’s essential to have a clear plan for building equity in your new property so you can release your guarantor within a few years. Improving your home’s value or making extra repayments on your loan are good ways to achieve this.
Pros:
- Avoid paying LMI, potentially saving thousands.
- Get a foothold in the market sooner.
Cons:
- Relies on a family member's financial support, which could affect their future plans.
- If you default on your loan, your guarantor's property could be at risk.
Team Up with a Partner or Friend
If saving a deposit feels impossible on your own, why not join forces with someone who shares your goal? By buying a property with a friend, family member, or partner, you can pool resources and split costs.
Properties can be purchased as "tenants in common," which means each person owns a specific share. But remember, all owners are jointly responsible for the entire loan. If one person can’t make their repayments, the others must cover the shortfall.
To avoid misunderstandings, it’s vital to draw up a written agreement covering everything from repair costs to what happens if one person wants to sell.
Pros:
- Share the financial burden and risks.
- Open doors to properties you couldn’t afford on your own.
Cons:
- Disputes or personal issues could strain your partnership.
- You're still liable for the entire loan if your partner can't pay.
Buy Off-the-Plan
Buying a property before it’s built—known as “off-the-plan”—might sound risky, but it can also be a strategic way to save money and secure a property. You lock in the purchase price now, and don’t need to settle for a year or two.
If the property’s value rises by the time it’s completed, you’ve already gained equity. However, there’s always a risk that the final valuation might not match the purchase price, leaving you short.
Pros:
- Lock in today’s price while saving on stamp duty.
- Delay settlement, giving you time to organise finances.
Cons:
- Final valuations can be lower than expected, creating a funding gap.
- Cash deposits are locked away until settlement.
What’s Next?
Choosing the right path to home ownership depends on your personal circumstances and financial goals. Each option has its pros and cons, so take the time to explore what works best for you. Consulting a mortgage broker can help you make an informed decision and identify the right solution for your needs.
Ready to Take the First Step?
At Dream Catchers Lending, we’re here to help you navigate your home-buying journey. Whether you’re considering equity, guarantor loans, or another option, our team can provide the guidance you need to turn your dreams into reality. Get in touch with us today to explore your options and start planning your path to home ownership!
Dream Catchers Lending is an MFAA-accredited member and a Certified Divorce Specialist. Feel free to book an obligation-free virtual appointment or leave us your details and we'll be in touch.
Photo by RDNE Stock Project.