One of the biggest challenges for homebuyers in Australia today is trying to save up for the required deposit to secure a mortgage. Fortunately for the next generation of proud homeowners, there is a way to get around that. Securing a home loan with a high LVR grants you the potential to lock down a mortgage without scrimping and saving for years. Sound appealing? Then this is the guide for you, keep reading to discover what LVR means to you as a buyer and how to land an LVR loan that will have you in your dream home in the blink of an eye.
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What Is an LVR Loan?
LVR home loans stands for loan-to-value ratio. This refers to the amount being borrowed out of the total amount the property is valued at expressed as a percentage. So, if you are interested in a home valued at $500,000 and you want to borrow $450,000, then you would be borrowing at 90% LVR. So how does this help buyers get into homes faster? By drastically cutting down on the amount you need to save yourself. Typically, home loans require a 20% mortgage deposit which can take Australians up to 6.7 years to save on average, LVR loans on the other hand can be secured with as little as a 5% deposit. The higher the LVR percentage is, the higher the risk for the bank if you default. If you have the knowledge and do a little saving, you can secure an LVR as high as 95%, but you will need a strong case. Here are three tips on how to get the best LVR for your new home:
1. Know Your Credit History
As with any home loan, it is important to know your credit score and be aware of any blemishes on your credit report. When applying for a high LVR loan the importance of a spot-free credit report cannot be overstated. The lower risk you appear to be as a borrower, the better your chances are at getting a higher LVR. To ensure you are a low-risk borrower the lender will check for certain red flags on your credit report including:
- How many credit checks have been done, more checks means more red flags
- A history of incurring debts
- Past loans you have defaulted on
Any of these things would cause the bank to flag you as a potential risk to default and likely result in your application being denied.
2. Have Genuine Savings
To secure a home loan or LVR for investment property, saving would seem like a no-brainer. The key here is to know what genuine savings means, what counts and what does not. Genuine savings are liquid in a bank account under the name of at least one person applying for the loan. Genuine savings are also verifiable, and some banks may require proof of history with three months’ worth of documents such as bank statements. To put it in layman’s terms this basically means you must be able to prove that you have a steady income and have accumulated these savings on your own as a result of that income. This also means that sporadic, sudden income will not be counted towards your genuine savings; including things such as an inheritance, winning the lottery or a monetary gift from family and friends.
3. Get a Guarantor
Just because family can’t give you the money to buy your new home, that doesn’t mean they can’t still help you secure LVR home loans. Let’s go back to our scenario of the $500,000 home. You want to borrow $450,000 at 90% LVR, but this time let’s imagine the bank has capped your borrowing capacity at 85% LVR. Your mom and dad can’t just give you the remaining 5% to count towards your savings, so what do you do? In this situation, you could ask your parents if they would use their home as security with the bank for your loan so that they’ll entrust you with the remaining amount. This is called a guarantor home loan and it is also the only way to borrow 100% of the purchase price for your home. Just make sure to send mom and dad a nice thank you note, and stay on top of your payments.
Making the case to get a high LVR loan is not always easy, but with these tips, you’ll be moving in before you can click your ruby slippers and say there’s no place like home.