While applying for a home loan, you will learn about many terms associated with finances that may or may not be beneficial for you; one of the terms is lender mortgage insurance (LMI). This is a type of insurance that the lender acquires to protect themselves if you default on repayment.
When the borrower is unable to put down a home loan deposit of at least 20% to invest in a property, they are required to pay LMI, which refers to a lender’s mortgage insurance. The borrower is the one who pays the fees for LMI, which is responsible for protecting the lender and not the borrower.
Even though LMI guarantees the process of home loan approval, it proves to be a disadvantage for you as it is an extra cost you have to pay besides the principal loan value, which can be a burden for you. Read this blog if you want to avoid the extra payment and be free from LMI.
Meet The Minimum Deposit Beforehand
Meeting the required deposit is one of the most obvious ways you can opt to avoid LMI. As you apply for a home loan, most lenders will require a home loan deposit of at least 20%. The amount of money you borrow poses a significant risk to the lender. This means the more money you borrow, the more risk the lender will be covered by. However, when you pay a higher deposit, you tend to appear as a lesser risk to the lender, which may allow you to get a home loan without LMI.
Having A-Low Risk Profession
Lenders tend to waive LMI on those professions that pose a lower risk for them.
A low-risk profession is one that has a stabilised average income that ensures the borrower that you are a less risky bet.
Some of the occupations that fall under the low-risk profession category and may be able to acquire a loan amount of up to 100% with the help of a finance broker in Sydney include medical professions such as doctors, optometrists, dentists, and veterinarians.
Some other professions may get to borrow a loan amount of up to 90%. These occupations include accountants, professional athletes, lawyers, mining specialists and entertainment professionals.
Apply For A Grant Or Scheme
In order to enable the first home buyers to get a home without any hassle, the government has carried out several grants and schemes. Home buyers who are eligible to get a grant or scheme may be able to get the loan amount with up to 95% of the property’s value without having to pay the LMI. Several grants, such as the Family Home Guarantee, permit a qualified single parent to purchase a home with even a deposit that is as low as 2%. You can consult a finance broker to get home loans in Sydney with a scheme carried out by the government.
Consider A Guarantor Loan
There is another way that you can opt to avoid paying LMI, which is to ask your close ones to help you through a guarantor loan by consulting a finance broker in Sydney. With a guarantor loan, your close ones can put up their property as collateral along with your property. Adding another security enables you to be a less risky bet in front of the lender. However, it can be a significant risk to the guarantor as they will be the ones to face the consequences if you fail to make the payments for home loans in Sydney.
Ensure that you comprehensively discuss the matter of a guarantor loan with your guarantor and consult a finance broker in Sydney for professional legal advice.
Take A Shared Equity Agreement
A shared equity agreement allows an owner of a property to fund a certain part of the property you wish to purchase. By funding your property, the other individuals become your equity partner. After the shared equity agreement, you can submit an application for a regular home loan for the remaining value of the property.
These are some of the ways you can avoid LMI while seeking home loans in Sydney. Depending on the circumstances, you can follow these tips to buy a home when you are self-employed. Consult a finance broker in Sydney to ensure that every step you take is safe and enables you to save some money.