We all know
that when buying a house, a certain sum of money is required for deposit. When
you apply for a loan, lenders will also want the borrowers to show proof that
they have some cash to cover the deposit. This is one reason why people who
plan to buy a house save up enough money first. Typically, borrowers would need
about 20% of the total cost of the house for the deposit.
But in reality,
not all people are able to save that huge sum of money. Not everyone has banked
in green bunks in their savings account.
Currently, anyone who can at least pay 5% deposit can already apply for
home loans.
This kind of
home loan is actually a great deal because most lenders are only willing to
loan up to 80% LVR. Anything higher than that is already considered high
risk. This is the next best thing to no
deposit home loans.
Furthermore,
95 home loans are not risky, unlike with 80% LVR. 95 home loans are less likely
to be made available to high-risk borrowers. Why? Let’s first understand why loans with 80%
LVR are considered risky. Lenders have
become very strict when it comes to lending money because they are trying to
minimize the high number of people who default on their loan. When people can’t
pay their monthly mortgage payments, the lenders obtain loss instead of profit
gain.
To evade that
situation, they need to have stricter rules in lending money to people. In
general, those who apply for a loan require proving that they have the capability
to pay off the loan and that they are financially responsible.
Anybody who
passes these qualifications can easily get a loan. They are more likely to
acquire a good deal. And they do not
need to have a very impressive record. As long as they can prove they can pay
off the loan, then they are good to go.
Normally, a
lender approves up to 80% of the acquired price. The remaining 20% has to be
carried by the borrower by paying for the deposit. Persons who do not meet most
of the requirements are either going to be declined of the loan or given one
that has a higher interest rate. It’s because
they are considered high risk borrowers.
So the more
risk you pose, the more likelihood there is for you to pay at higher deposit
and interest rates. Generally, the bigger loan you get, the higher the rate as
well.
Are 95 home loans
will also have a higher rate? No. The lenders can only lend so much money. They
would not want to offer large amount of money to people and risk incurring
losses. Reasonably, if they allow approving loans that have 95% LVR they make
sure that these are awarded to people who have extremely impressive qualifications.
These are people who have enough money for loan; those who pose very little, if
none, risk. And because of that, these loans are not going to have high
interest rates. And because only 5% of the property cost is left, it's easier
to pay for the deposit. This is why those who do not have a lot of money meant
for a deposit can meet the criteria for this type of loan.
