This young couple worked hard and bought a house at 30, with nothing but savings, dedication and a 2 million dollar gift from their parents...

For everyone else here are 7 ways to avoid Lenders’ Mortgage Insurance...

Ever-increasing property prices make saving a 20% deposit for a home a tall order for many homebuyers. To buy a $500,000 apartment, you’ll need to save a massive $100,000. Homebuyers can apply for a loan with a smaller deposit, but will then have to come up with the cash to pay for Lenders Mortgage Insurance (LMI). The government introduced LMI back in the 1960s to encourage banks to lend more than 80% of a property’s value, allowing people with smaller deposits to get into the market sooner.

In a nutshell, it’s an insurance policy designed to protect the lender from financial loss if the borrower can’t afford to meet their home loan repayments. Most borrowers are required to pay LMI when they borrow more than 80% of a property’s purchase price.

But there are some bona fide ways around this hefty expense. First home loan deposit scheme (FHLDS). At the start of each financial year the government typically releases up to 10,000 new places in its FHLDS. Administered by the National Housing Finance and Investment Corporation, the scheme enables eligible first home buyers to purchase a home with a deposit as little as 5% without having to pay LMI.

This is because the NHFIC provides participating lenders with a guarantee of up to 15% of the value of the property purchased. Of course you’ll have to meet some pretty strict criteria. There are income thresholds, property price thresholds and eligible property types, plus you must intend to live in the property, so this is not a scheme for investors.

You’ll need at least a 5% deposit built off genuine savings, and most loans under the scheme require scheduled repayments of both principal and interest for the full period of the agreement. To find out more, you can visit the NHFIC website or speak to your broker.

Family Home Guarantee: The government has announced a new program called the Family Home Guarantee which provides eligible single parents with dependents the opportunity to build a new home or purchase an existing home with a deposit of just 2%, and no LMI. This is a new budget initiative aimed squarely at single-parent households, of which an estimated 105,000 (of 125,000) are headed by women.

Unlike the FHLDS, eligible applicants don’t need to be first home buyers, but they still need to be over 18, have an annual taxable income of no more than $125,000 and have the ability to service a home loan. The finer details of this scheme are still being finalised, but will soon be available on the NHFIC website.

Guarantor loans: If mum and dad have kicked you out of the family nest the least they can do is help you secure a loan for your own place, right? Not every parent has spare cash to throw at a deposit, but they may be able to be a guarantor for your loan. A guarantor needs an asset, usually their own house, to provide security for the loan. This means if the borrower defaults on the loan, the lender may require the guarantor to sell their home to pay off the debt.

Ultimately, a guarantor is providing the insurance that would otherwise be provided by LMI. Parents typically step in as guarantor, but a sibling, grandparent, extended family member or even a friend could take on the role, depending on an individual lender’s policies.

With a guarantor loan you can borrow as much as 100% of the property value, avoid LMI, and cover all purchasing costs (plus debt consolidation if required.)

The professional advantage

If you’re a doctor, a vet, a chiropractor, a pharmacist or a dentist, you may be able to find a lender happy to waive your LMI. Some lawyers, mining engineers, accountants, solicitors, professional athletes and entertainment professionals also make the cut.

By studying historical data, banks have identified professional niches with good credit habits and they view people that work in these professions as a lower risk proposition, especially if you have a high salary and belong to an industry body.

This is because members of industry bodies like the Australian Medical Association or CPA Australia are likely to have a certain level of education. Most of these bodies have minimum bars: the relevant degree, regular continuing professional development and processes to confirm you are still practising, thereby acting as a proxy for customer qualification.

Ask your broker which lenders waive LMI for doctors and other professionals or even better get in touch with us at [email protected]

High income earners:

If you don’t fall into the professional categories above but you’re earning a motza as a company CEO, or you’re a high-income earner buying in a “safe” metro location, you could be eligible for waived LMI with some lenders. To find out which lenders fall into this camp, have a chat to your mortgage broker.

DHA investors

If you’re looking to buy an investment property, a Defence Housing Australia property is an interesting option. Alongside long-term leases, guaranteed rent returns and included maintenance, DHA properties can sometimes secure their new owner an LMI waiver.

There’s a small pool of lenders who view DHA investors as conservative investors who are more likely to meet loan repayments for the life of a loan. As above, your mortgage broker can provide advice here.

Lender promotions

Every now and again, a lender will advertise a low or no LMI deal. It will come with terms and conditions, but you may well meet the brief. As an example, there are currently several banks promoting $1 LMI for homebuyers with a loan to value ratio up to 85% and a maximum loan size of $850,000, and a digital bank offering LMI-free loans for borrowers with a 15% deposit. Your broker should be up to speed with these kinds of offers as and when they’re available.

There are also some lenders that will accept a 15% deposit with no LMI, but will charge a higher rate of interest. This can be a good option for the first 12 months of your mortgage, after which you can refinance to a better rate. This strategy doesn’t work in all situations, but it’s worth speaking to your broker to see if it’s a pathway to speedier home ownership in your circumstances.

We are happy to answer any questions and help you navigate the minefield of grants and financial products out there. Get in touch with me directly at [email protected]