All you need to know about Low Deposit Loans
As you will likely know, borrowing with less than a 20% deposit has recently become a lot more difficult and more expensive!
It is safe to say that in today’s current climate 5% loans are pretty much non-existent! However, all is not lost – loans with a minimum 10% deposit are still available, although these will cost you more in fees than pre-LVR restrictions.
Don’t forget you may be eligible for a Welcome Home Loan which only requires a 10% deposit.
Find more information here: http://www.welcomehomeloan.co.nz/
Fees for Low Deposit Loans
Since the tightening up of low deposit loans, Banks and Lenders have not only increased fees and interest rates, but now also apply application fees and no longer offer contributions for legal fees.
So what fees are you up for?
Application Fee – Average cost $400.
Low Equity Fee – Based as a percentage on the value of your loan – depending on your actual LVR these fees range anywhere from 0.50% to 1.50%. Some lenders don’t charge a fee but instead add a margin to your interest rate.
Low Equity Margin – Many banks and lenders now distinguish rates between those with more than 20% equity or deposit and those with less than 20% equity or deposit. Rates can be as much as 0.50% (half a percent) higher and sometimes more for those with less than 20% deposit.
Legal Fees – these can vary from solicitor to solicitor – so it pays to shop around. Some solicitors will also charge extra for purchases funded via KiwiSaver. Purchases via Trusts are generally more expensive too.
Registered Valuation – It is normal for banks to request a valuation for properties being purchased with less than 20% deposit. Valuations can range from $550 upwards depending on the valuer as well as the value, size and location of the property.
So, when it comes to getting a loan with a low deposit – it does pay to shop around, not only to find a lender who offers low deposit loans but also to find the best deal.
So what are Low Equity Fees and Margins all about?
Due to the high risk for banks of low deposit loans, they are required to take out a lenders mortgage insurance to minimise their risk. The low equity fee covers the cost of this insurance.
Tips for ‘Getting to Yes’ with the bank for loans with less than 20% deposit
While it’s fair to say that it is difficult in the current climate to obtain a loan with less than 20% deposit via a bank, you may still be able to obtain one if you have a very strong application. To have a fighting chance, applicants will likely need to match the following criteria;
- Have excellent credit history
- Preferably a saved deposit
- Demonstrate good financial management and have excellent account conduct (no unauthorised overdrafts, dishonours)
- Very good surplus of funds once all expenses deducted
- Limited, to no other debt to service
- Steady long-term employment/income