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Can I get a mortgage if I'm not in the mainstream of borrowers?

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Mortgages can be arranged for people with low deposits but who have family with assets Self-employed people with unorthodox earnings can get ‘low-doc’ mortgages Self-employed borrowers need good financial and tax documentation

The most straightforward home loan applications are those from borrowers who have saved 20 per cent deposit and who worked fulltime for at least a year, under a PAYG salary arrangement. These are straightforward because the lender can see that the borrower has saved the deposit from their own income, and that they have regular employment at a certain salary. If they also have a good credit history, their application moves quickly.

But what if you’re a first home buyer who wants to get into the property market, but your deposit is too small? Or what if you are self-employed or a contractor, and your income is difficult to verify? If you fall into these situations, there are still ways to get a good home loan.

Family guarantee: most lenders offer some form of ‘family guarantee’ loan for people with low deposits but family with assets. This is how it works: let’s say you have found the house you want to buy but you have only saved five per cent of the purchase price. You perhaps don’t want to incur the expenses of lenders’ mortgage insurance (LMI), which is what you have to pay for if you have less than 20 per cent as a deposit. However, the lender thinks you have good income and you also have family with assets that can be used as security. The lender may be able to take your family’s legal guarantee to top up the deposit to 20 per cent (meaning no LMI). The property you purchase will stand as security for the loan, with your family’s property as the second stage of security should your property not cover the costs. This allows first home buyers to enter the property market with five per cent deposit and no LMI costs, however it does put some pressure on the family guarantor; these arrangements should not be entered into lightly and it is highly recommended and often required that the family member providing the guarantee obtain independent legal advice.

Family gift: not everyone’s family wants to have their own property on the line, should their children or grandchildren default on a mortgage. In that case, they can still aid their family: if you have five per cent deposit, your family can provide the balance to bring you up to 20 per cent deposit. They can redraw on their own mortgage – or withdraw from savings – and gift you the money. The lender will require a statutory declaration from the giver, that the money is a gift that does not have to be repaid. In this way the family can help you buy the property but they are not liable for you defaulting on your mortgage.

Low-doc: if you’re self-employed or a contract worker, you are required to produce two years’ worth of tax returns. But perhaps these tax returns are dated and no longer reflect what your income really is. A lender or broker will use a process called ‘low-doc’ (low documentation) which is an alternative collection and documentation of your income. It can include BAS statements, ATO portal verification and even bank statements to test the frequency and size of deposits. Low-doc applications are usually completed with the cooperation of your accountant, and a lender will rarely do a loan like this with less than 20 per cent deposit.

Poor credit history: There are also lending solutions for client’s who lack a clear credit record. Often due to the perceived increased risk, these borrowers will often have to pay a considerable premium in interest rate and fees. These loans should be viewed as a stepping stone back into the prime lending market and they provide a valid solution for many borrowers who may have suffered misfortunes in the past.

There is a loan for most people who earn income and have saved some money. Always see a mortgage broker to give you the right guidance

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