95% Home LoanAustralian lenders no longer offer no deposit home loans but some lenders still offer loans for 95% of the purchase price. This type of loan is often referred to as a 95% Loan to Valuation Ratio (LVR) loan.
Lenders are much stricter when it comes to accepting these loans.
You may be wondering what you need to do to secure a 95% loan. And which lender has the best 95% loan package for you.
Can you borrow 95%?
Loans more than 80% of the purchase price are considered, by Australian lenders, to be high risk loans. Therefore lenders insure these loans with Lenders Mortgage Insurance (LMI).
The companies that offer the LMI have separate lending guidelines that are more conservative than the banks. These stricter guidelines make borrowing 95% much more difficult to secure than other home loans.
What types of borrowers are the banks looking for?
▪ You should have a good credit history with no defaults or other marks. You should also have consistently paid rent, credit cards, personal loans and other bills on time for the previous 6 months.
▪ Steady employment in the same jobfor 6 to 12 months. Lenders may make exceptions to this policy.
▪ A good income and ‘serviceability ratio’.Lenders are stricter when considering your ability to repay a 95% loan.
▪ A decent asset position relative to your income and age.
▪ Lenders expect you to have Genuine savings of 5% of the purchase price. You can still borrow if you don’t have savings as you may be eligible for a 95% no savings loanor a 110% guarantor home loan. Some lenders will consider the rent you have paid during the previous 12 months, or even a parental gift as genuine savings.
▪ You should have minimal debts.Applicants that have high credit card and personal loan debt are usually not accepted. As a rule of thumb, if your unsecured debt exceeds 5% you will normally be denied a 95% loan.
▪ A good location and/or property type.Lenders are often cautious when granting loans for small town properties, high rise apartment units in the CBD or other uncommon properties.
Call us on 1300 889 743 or one of our specialist mortgage brokers will call you to discuss if a 95% home loan is right for you.
Can you borrow over $1,000,000?
The truth is that most of lenders only offer 95% mortgages for up to $700,000 or $800,000. There are a few more relaxed lenders that allow you up to $1,000,000.
But $1,000,000 is the limit for 95% home loans. This is because there are Lenders Mortgage Insurer restrictions that stop you from borrowing more. Some lenders have exclusive agreements with their LMI insurer and will offer a 95% loan up to $1,500,000 if you are in an extremely strong financial situation.
Typically LMI can be capitalised (included in the loan amount) for loans less than $1,000,000. On the other hand for loans over $1,000,000 you cannot capitalise LMI and so you must pay the mortgage insurance with the loan amount. This means you are borrowing around 91.5% plus LMI.
Which lenders offer 95% loans?
Lenders have limited reserves to lend out. At the same time they want the most profits while minimizing risk. 95% home loans are inherently very high risk. Therefore lenders assign most of their available funds to loans that are less.
Because lenders only have a limited amount of money to lend at 95% they only lend to low risk borrowers.