Last updated: 3rd March 2023
What are your options? Check out some funding ideas in this infographic, to guide you through what may be available to you**.
If you already have some assets you could liquidate or savings in the bank, then that may be a good place to start. If you already own a property, then there are options available to you that you might not have considered.
A common option for first time buyers, is with the help of family and friends, also known as The Bank of Mum and Dad. A helping hand towards a deposit, can save years of saving, but it is important to talk about and understand whether the funding is a cash gift or whether it will need to be repaid at some point in the future. If you are considering using the bank of mum and dad to help purchase a home, it's a good idea to seek professional advice from a financial advisor or a solicitor to ensure that the arrangement is structured in a way that is fair, safe, and in the best interests of all parties involved.
The most common option is of course, getting a mortgage; while it is possible to get a mortgage in Australia without savings, there will be extra costs involved, such as lenders mortgage insurance(LMI), when the deposit is typically less than 20%. Borrowers are required to pay for LMI if they do not have a large enough deposit to meet the lender's requirements for a loan. The cost of LMI can vary depending on the lender and the specifics of the loan. It is usually calculated as a one-off premium that is added to the loan balance. The cost of LMI can be substantial, so it's important to consider the cost when applying for a mortgage in Australia.
An important consideration, which will determine which options are available, is whether you are in the process of, or planning on selling your property, or whether you are looking at purchasing a second home.
If you are not selling your current property, but looking to buy a second home or an investment property, then a typical home equity loan, may be a good option to consider.
A home equity loan can be a useful tool for buying a second home, as it allows you to leverage the equity you have built up in your primary residence to purchase another property.
It's important to note that a home equity loan is a form of secured debt, which means that your primary residence will be used as collateral for the loan. If you are unable to repay the loan, the lender may foreclose on your home. Additionally, a home equity loan may have a higher interest rate than a traditional mortgage, as it is a type of second mortgage. This means that the interest rate you pay on the loan may be higher than the interest rate on your primary mortgage. Before applying for a home equity loan, it's a good idea to consider your financial goals, your ability to repay the loan, and the risks involved. You may also want to seek the advice of a financial advisor to determine if this type of loan is right for you.
Early deposit release, also known as section 27 deposit release in Victoria; Allow the vendor to request access to the buyer's deposit, before the settlement date. The property must be under an unconditional offer, and the release is limited by the buyer's deposit amount. Note that the release of the deposit may take several weeks to process.
They are only available when the vendor's property is under an unconditional offer. Also known as short term bridging loans, they are typically available up to 80% of the property value and can be approved with funds dispersed within 24 to 48 hours of application. They are a great option when funds are needed quickly and for only a short time, until the property settlement date. Common uses include home deposits and bids at auction to secure a 'dream property'.
If you find yourself needing access to funds earlier in the process of selling your property, then you could also consider vendor paid advertising.
This product is useful, if you are ready to sell your property, but would like to postpone the costs of property advertising. It is also useful, if you need funds for repairs, home improvements prior to the sale, moving costs or other related charges. The loan can be aligned to be repaid, when the property sells, so you can avoid any upfront costs at a challenging time.
Another common option to consider is a bridging loan, although they typically take several weeks to process and approve through the banks.
A common solution to ‘bridge the gap’ between the selling of one property and the buying of another - which rarely occur at the same time. They are sometimes used to quickly raise funds for unexpected expenses such as property repairs or renovations. They may take 2 or 3 weeks to approve, and generally run for a shorter period than a mortgage, such as 1 or 2 years.
** Please note any information and ideas discussed here, is general in nature, and does not constitute professional advice. Please consider professional advice depending on your particular circumstances.
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1 Advances are subject to assessment and approval criteria. Advances can range from $5,000 up to $5,000,000 or the available equity in your property(80% property value) minus fees.
2 Interest on overdue amounts will be charged at a rate of 1.5% of the outstanding amount payable on the 61st day and then every 30 days after the due date.
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