Statistics Say: WA First Home Buyers are Most Prolific Borrowers in Australia
Announcement posted by Smartline Rockingham 16 Sep 2015
Mortgage brokers in Rockingham reveal a crucial mistake that many WA residents make when buying their first homes.
Rockingham, WA, 16 September 2015 - A recent article in Perth Now revealed that the average first home buyer in WA borrows the highest percentage of the purchase price in Australia. Close to 60% of WA first home buyers borrow more than 60% of the purchase price of their new homes. Close to 80% of WA first home buyers borrow at least 80% of the purchase price, requiring them to purchase Lenders Mortgage Insurance (LMI) for their lenders.
LMI: the Hidden Expense
LMI is an insurance policy that protects the lender in case the borrower is unable to make mortgage repayments. Any borrower who can’t provide more than 20% the home price for a deposit is required to buy LMI for the lender. The lender then adds the cost of the LMI to the loan. This makes payments higher for the borrower and is money they will never get back.
Justin Smith is the Principal Mortgage Broker for Smartline Rockingham. According to Mr Smith:
“We have helped a lot of people buy their first homes. Programs such as the First Home Owner Grant and the First Home Owner Rate of Duty save first home buyers thousands of dollars and enable a lot of people who wouldn’t otherwise gain market entry to buy their first homes. Sometimes, though, a buyer simply can’t raise 20% for a down payment. In that case, Lenders Mortgage Insurance can be the sole difference between buying a first home and not buying it.”
However, Mr Smith recommends doing anything one can to eliminate the expense of LMI: “For people who wouldn’t otherwise be able to buy a home, LMI is a lifesaver. However, we always try to help our home buyers find a way to avoid LMI if at all possible.”
How to Avoid Buying LMI
There are three common strategies home buyers use to avoid LMI: borrowing enough money for the deposit, a parental guarantor or waiting until they have more than 20% for a deposit.
Borrowing for a Deposit
Borrowing money from parents for a deposit on a home is a traditional method used by young home buyers. It benefits the borrower, but it benefits the parents, too. Parents aren’t responsible for the payments later on if the adult children default on the loan. It allows them to make their contribution, get out of the way and let their children pay them back in whatever manner they have agreed upon.
Parental Guarantor
A parent or parents can become guarantor or guarantors for the home loan. They become responsible for the repayments if the borrower is unable to make them. This can put the parent in a large “hole” if the child defaults.
Wait and Save
If a potential first home buyer doesn’t have enough money for the deposit, they can wait until they do to buy the home. However, Mr Smith sees this as a fourth option. According to Mr Smith: “Because housing prices tend to rise so quickly, we usually recommend that people who can’t find the 20% go ahead with the LMI and buy the home if they can. LMI is a mistake for a lot of borrowers, but it is also a great safety net for those who really need it.”
Smartline Rockingham is a firm of mortgage brokers serving Rockingham, Baldivis, Kwinana and nearby Perth suburbs. They have been Rockingham’s most trusted mortgage brokers since 1999. For more information or an obligation-free consult, call 1300 958 730 or visit their website: http://www.mortgagebrokersrockingham.com.au/.
LMI: the Hidden Expense
LMI is an insurance policy that protects the lender in case the borrower is unable to make mortgage repayments. Any borrower who can’t provide more than 20% the home price for a deposit is required to buy LMI for the lender. The lender then adds the cost of the LMI to the loan. This makes payments higher for the borrower and is money they will never get back.
Justin Smith is the Principal Mortgage Broker for Smartline Rockingham. According to Mr Smith:
“We have helped a lot of people buy their first homes. Programs such as the First Home Owner Grant and the First Home Owner Rate of Duty save first home buyers thousands of dollars and enable a lot of people who wouldn’t otherwise gain market entry to buy their first homes. Sometimes, though, a buyer simply can’t raise 20% for a down payment. In that case, Lenders Mortgage Insurance can be the sole difference between buying a first home and not buying it.”
However, Mr Smith recommends doing anything one can to eliminate the expense of LMI: “For people who wouldn’t otherwise be able to buy a home, LMI is a lifesaver. However, we always try to help our home buyers find a way to avoid LMI if at all possible.”
How to Avoid Buying LMI
There are three common strategies home buyers use to avoid LMI: borrowing enough money for the deposit, a parental guarantor or waiting until they have more than 20% for a deposit.
Borrowing for a Deposit
Borrowing money from parents for a deposit on a home is a traditional method used by young home buyers. It benefits the borrower, but it benefits the parents, too. Parents aren’t responsible for the payments later on if the adult children default on the loan. It allows them to make their contribution, get out of the way and let their children pay them back in whatever manner they have agreed upon.
Parental Guarantor
A parent or parents can become guarantor or guarantors for the home loan. They become responsible for the repayments if the borrower is unable to make them. This can put the parent in a large “hole” if the child defaults.
Wait and Save
If a potential first home buyer doesn’t have enough money for the deposit, they can wait until they do to buy the home. However, Mr Smith sees this as a fourth option. According to Mr Smith: “Because housing prices tend to rise so quickly, we usually recommend that people who can’t find the 20% go ahead with the LMI and buy the home if they can. LMI is a mistake for a lot of borrowers, but it is also a great safety net for those who really need it.”
Smartline Rockingham is a firm of mortgage brokers serving Rockingham, Baldivis, Kwinana and nearby Perth suburbs. They have been Rockingham’s most trusted mortgage brokers since 1999. For more information or an obligation-free consult, call 1300 958 730 or visit their website: http://www.mortgagebrokersrockingham.com.au/.