What would you say is the best way to get into the property market if you have no cash savings and why?
The best way is with a guarantor. You can borrow the full amount of the purchase price as well as the costs such as stamp duty. As if that wasn't good enough already you also pay no LMI [lender's mortgage insurance] and you can often get better rate discounts than someone who is borrowing 95 per cent.
The catch is that your parents must provide a limited guarantee which is secured by their property. The second catch is that only a couple of lenders will allow you to use a guarantor loan to buy an investment property, most lenders only allow you to use it to buy a home to live in.
How can your family help you get into the property market if you have no deposit?
The best way is with a guarantee.
If your family don't feel comfortable with that then they may be able to gift or loan you a deposit. The problem with this is that many lenders like to see genuine savings before approving your loan.
If you didn't save your deposit yourself then they may not be sure that you can handle your money responsibly and it will be harder to get a loan. Not every lender requires you to have saved a deposit, a good mortgage broker can help you to get approved.
How can you use your primary residence to borrow and enter the property market without actually having any cash saved?
We've seen some incredible growth in the past 12 few years, particularly in Sydney.
A lot of our customers are refinancing their home loans to 90 per cent of the new higher value of their home and using this money as a deposit to buy their first investment property. It's a really exciting time to see people who we helped to buy their first home just a year ago and they are already able to buy an investment.
How does vendor finance work? Would you recommend it as a way to get into the property market if you can’t find other options?
Vendor finance can cover several different methods of financing a property. The property is usually sold to you for a slightly higher price however the vendor will lend you part of your deposit.
It can help you to get into the market, however you need to have a strategy to refinance the loan from the vendor into a standard bank loan at a later date. I would only consider this as a last resort if you can't buy a property another way.
What about buying with a family member/ friend? Is that a viable option for people with no/low deposits?
It's better to buy a property on your own if you can. You may find that you and your friend end up having different financial needs at different times. One of you may have a baby and then want to sell the investment, whereas the other wants to keep it.
If you do invest with a friend then it works best if you have clearly defined goals, expectations and an exit strategy. Otherwise you may not be friends in a few years' time!
Typically one friend has a deposit and the other has a good income, or one friend is a tradie who can renovate the property and the other has the deposit and income to service the debt.
How can home owners squeeze more from their equity to get a deposit to invest?
These days us brokers can order upfront valuations with several lenders. If your bank didn't give you a very good valuation then we can check to see if another one can. Of course it doesn't hurt to cover the basics such as making your property look good and doing your own comparable sales research to discuss with the valuer.
Do 100 per cent loans still exist?
No they don't. If you don't have a guarantor, equity in another property or a deposit then there aren't many options. There are a few extremely creative options such as using a personal loan as a deposit however in practice they rarely work. Start saving!
Many lenders like to see genuine savings before approving your loan
Are there any other ways investors can get their next property with no deposit? What are they and how do they work?
Many people overlook buying a property using their super. If you set up a self-managed super fund then you can borrow 80 per cent of the property value and your super can fund the rest. This means that you don't have to save a deposit yourself, but if you have no super then you are still out of luck!
Are there any methods that you absolutely wouldn’t recommend?
People often think that a developer or builder rebate can be used as their deposit. However the bank valuer will simply drop the valuation of the property by an amount equal to the rebate. So you still need a deposit! If something sounds too good to be true then it probably is.