Let us call it as it is: lender’s mortgage insurance (LMI) is a form of penalty for risky borrowers. Paying a deposit less than 20% of the property’s cost is going to merit this expense that can set you back thousands or tens of thousands more.
If you want to buy one of the sought-after house and land packages in Townsville, Cairns or any other part of Queensland without producing a 20% deposit, the LMI is something you usually have to live with. However, there are cases where you can avoid this charge even if you can’t personally afford to shoulder one-fifth of the property’s cost up front.
Below are the strategies you should consider to convince your lender to waive the LMI.
Increase Your Deposit
Contrary to popular belief, the deposit does not have to consist of 100% genuine savings. Most lenders will want to see 5% of the total deposit coming from your actual savings. As long as you meet this requirement, you can explore other sources of funds to reach the 20% threshold.
To beef up your deposit, consider asking your parents to chip in, for gifts are an acceptable supplement to genuine savings. Windfalls, such as inheritances and bonuses, can also be used. The proceeds from the sale of any unwanted asset are also useful. If you are a first-time home buyer, you can qualify for a grant offered by the state government.
Use a Guarantor
Applying for a guarantor loan reduces the risk your lender has to take to approve your mortgage application, creating an incentive to waive the LMI. A guarantor is a person who is willing to provide additional security for the home loan. As a result, the lender will have the benefit of having two pieces of collateral to cash out in case you default later on.
Most lenders will not accept just anybody to be your guarantor. Typically, this person has to be a close family member, like your parents. If you struggle to keep your payments, your guarantor will take over to prevent triggering foreclosure.
Enter the Right Profession
High-earning borrowers can also be exempted from paying the LMI. Doctors, lawyers, accountants, professional athletes, entertainment personalities, and mining specialists are some of the professions that get this privilege.
Of course, there are other requirements and loan size maximums that must be considered to qualify. Some high-earning borrowers might not need to pay any deposit at all while others have to spend at least 10% of the property’s cost to avoid the LMI.
Have a Perfect Credit History
If you are just a borrower with an average profession, you can still be eligible to get rid of the LMI without paying a 20% deposit and without looking for a guarantor. Having a flawless credit history can convince some lenders to waive the LMI if you agree to pay 15% of the property’s price up front.
Being required to pay for the LMI can indicate if you really can afford to buy a house. If there is no better way to avoid this charge, assess your situation to determine whether pursuing home ownership now truly makes sense for you.