100 Percent Home Loans
Saving for a deposit is probably the hardest step in the process of paying off a home loan, which is why 100% home loans are such a sought after product, unfortunately these mystical and magical products are no more. 100% home loans are not the same as they used to be, and you can thank the GFC for that one.
Can You Still Get A 100% Home Loan?
There are ways to still get a 100% home loan, but you will need a guarantor. This means someone, usually your parents, will put their house up as security on your loan. So if you ever get in trouble and cannot pay your loan back, the bank will come after your parent's house to get their money back.
You can no longer get a true 100% loan on your own, whenever you see a 'no deposit home loan' advertised, look for the disclaimer, it will usually say something like 'with guarantor'. These are still a good deal though, if you can get a guarantor who is willing to help you out.
What Are The Advantages Of A 100% Mortgage (With Guarantor)?
As a borrower there are many advantages when you have a guarantor on your home loan, whether it is a 100% home loan or not. For starters, you won't have to pay mortgage insurance, which usually runs you tens of thousands of dollars. You may also be able to borrow more than 100% of the purchase price of the house, in order to pay for other costs such as stamp duty, solicitor fees and bank fees. Interest rates are generally lower when you have a guarantor on your loan, as the bank can rest assured knowing they have a back up property if things were to go wrong. A guarantor home loan is also usually easier to qualify for, the bank will be more willing to loan you money on this type of loan than a simple old 90-95% LVR home loan.
What Else Is Involved In A 100% Guarantor Home Loan?
If you were to default on your home loan, the following would happen. Firstly the bank would sell your house to pay off your debt, if there is still money owing on the loan amount then they move on to your guarantor. The bank will demand the guarantor pays the remainder of the loan, and if the guarantor does not have enough money to do so, the bank will then repossess their property and sell it off to get their money back. The bank only takes what is theirs though, i.e. when they sell your guarantor's house, they will take out their share of the amount and give the rest back to your guarantor.
This is the only time when the guarantor has to be involved, the guarantor isn't forced to make any weekly or monthly repayments if you miss them, and they are only contacted if and when you default on your loan. (Apart from being involved in the application for the home loan in the first instance)
Once you have paid off enough of your home loan, and have enough equity in your home, you can apply to have the guarantor removed from the loan. This will be allowed to happen if your loan is less than 90% of the value of the house, although you will have to pay mortgage insurance at this stage. However if the loan amount is less than 80% of the value of the house you won't have to pay mortgage insurance.
Does The Guarantor Have To Own Their House?
Not fully, as long as there is enough equity in the guarantor’s home to cover the debt if you were to default, they can be a guarantor. This means if your parents are also paying off their own house, they can still be a guarantor, as long as they have paid off enough of the house/ have enough equity in their home. The guarantor is required to seek independent legal advice before any of this takes place, so a solicitor will explain everything to them, although this means that you or they will have to pay for this advice.
Can You Get A 100% Mortgage Without A Guarantor?
There are a couple of ways to do this, although they aren't true 100% home loans. Some lenders offer a service whereby they offer you 2 loans in order for you to buy a house with no savings. This involves a loan for the deposit amount, which will be at a higher interest rate than the home loan, as it is similar to a personal loan. This amount will then be used as a deposit on the second loan, the home loan. Usually the requirements to get such a loan are very strict, you would have to have a perfect credit history and be earning more than enough cash to cover both loan repayments.