As house prices have increased dramatically over the past decade, more and more people are turning to their parents/guardians to help them get into a property. The most common way they do this is through what’s known as a guarantor loan. This type of loan works, with an immediate family member putting up some of the equity in their home, which is, in effect, a deposit. If you are looking to borrow above an 80% LVR, you are required to pay Lenders Mortgage Insurance (LMI), which can be very high.
The Federal Government has recognised that there are many first home buyers out there who would like to buy a home of their own but might not have the luxury of having a parent act as a guarantor. Because of that, they recently introduced the First Home Loan Deposit Scheme, in which the Government effectively acts as the guarantor on your deposit shortfall. This means you can buy a home with an LVR of up to 95% and not pay LMI. This is hugely advantageous to first home buyers who will likely also not have to pay stamp duty.
If you’re a first home buyer looking for an owner-occupier, there are several loans and schemes in place to help you get into a property. However, for investors, it can be a little trickier. If you don’t have much money or equity, then it can be tough to invest in property. You will have to pay stamp duty, which alone is 4-5% of the property price, as well as LMI if you are unable to come up with a 20% deposit.
One of the most common ways investors get around these issues is to partner with someone else. This is known as a joint venture, and it typically involves one person providing the borrowing capacity (finance) and the other providing cash. This type of arrangement is normally best suited to a project like a renovation or a development, with the goal of selling the property upon completion. However, some people do hold investments together using this type of arrangement.