No Deposit Home Loans - Lending Policy Guidelines

The lending guidelines of no deposit home loans differ from traditional home loans which can extend up to 95% of the purchase price. The reason for this is that the lender is providing the full amount of the purchase price and therefore is at greater risk if the home loan is not repaid as there is no equity in the property when it is first purchased.

Other elements that come into play are things like the location; this is due to the lender wanting a reasonable growth rate in the properties value over time to ensure that equity grows not only by way of repayments but also through capital appreciation.

Below we have highlighted some key lending policy guidelines for no deposit home loans.

It should be noted that with the Credit Issues being experienced Globally, Lenders know require applicants to show 5% genuine savings for any loans that are above 85% Loan to Value. Although Lending institutions will still consider applicants under a no deposit scenario, it is of utmost importance that you can demonstrate a 5% savings pattern over a 6 month period.

For further information we recommend, prior to any purchase that you obtain a pre-approval, ensuring that the Lender of choice is comfortable in providing you with the finance to purchase your next or First Home.

You can contact us for more clarification.

Location Policy Guide

The location of the property plays a key role in whether a no deposit home loan provider will accept the property.

The location is generally determined by a postcode listing and is broken into zones ranging from 1 through to 6, no deposit home loan providers are looking predominantly for properties located in zones 1 and 2 as this provides the greatest potential for capital growth and resale values in the event of a default on the home loan.

Choosing the right area to purchase a property is quite important to no deposit home loan providers as this lessens their risk level somewhat.

Employment Policy Guide

When it comes to employment all no deposit home loans require that you are able to provide a full set of financials even if you are self employed. This means that low doc applicants are at this time unable to obtain a no deposit home loan.

Another note is that no deposit home loan providers are also looking for a stable employment history, what this means is that they prefer you to have been in your current role in a full time capacity for 12 to 24 months.

Again this is another risk they deem as important as it plays a direct role in your ability to repay the home loan debt over the longer term. Generally if one applicant is part time employed they will look for a permanent part time role, again ensuring an income stream is more likely to be there versus a casual role for example.

Credit Rating Policy Guide

A key criterion for no deposit home loan providers is that of having a clean credit history free from defaults, judgements or bankruptcy for example. They look for this as it is a potential sign that if there is a history of non payment or late payment then this may overflow to the proposed home loan they may be providing.

If you have a default for a Telco and it is a small default then a no deposit home loan provider may consider this although the likelihood is you will need to look at alternate home loans such as a 95% lend.

Acceptable Property type Guide
No deposit home loans are specifically for the purchase of residential property and the types of property you can purchase are freestanding homes, units, townhouses or apartments.

There are some guidelines in place which relate to the size of the property i.e. a unit needing to be greater than 50sqm in living size, or land which is no greater than 20 acres.

All of this again relates to the saleability of the property and capital growth potential which all relate to minimising the risk that the home loan provider is at in the event of a foreclosure.

Repayment History Guide (Existing liabilities)

Another key point which no deposit home loan providers look at is that of your existing repayment history.

When applying for a no deposit home loan you will need to provide the lender with 3-6 months worth of statements for any credit card or personal/car loan you may currently have, the home loan provider will assess your repayment history to see if you have maintained good conduct on these loans.

This is a sound way in which home loan providers can ascertain your ability to repay a proposed debt.

A repayment history may also include good conduct of repayment on your rental property and some home loan providers will ask for a letter from your agent in regards to your rental conduct as well.

Conclusion

In essence all of these points make up the lending policy guidelines for no deposit home loans although there are other points which may differ between one home loan provider to the next.

If you have any questions on the above or simply want to find out more we invite you to contact our home loan consultants who will be able to assist.

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