Not everyone can afford a deposit, but how can you get into the property market when you can afford the repayment but can’t save your deposit.
Even though lender’s are not currently lending 100%-110% of the purchase price of a property anymore there are some ways you can get into the market without a deposit.
Here are 3 things you can do if you can’t afford your deposit:
1. Get A Family Member to Go Guarantor
Many lenders will lend up to 105% of the value of a property (with no deposit required) if you can get a family member or friend to go guarantor for you.
This means they use the equity in their property to secure a portion of the loan. A guarantor can secure the entire loan with their existing equity but often they will just be required to secure any funds above 80% of the value of the new property being purchased.
If things go well and you pay down your loan to the point where the loan becomes less than 80% of the value of the home the guarantor is then usually removed from the loan and the property becomes the single security on the loan.
There is generally no benefit to the guarantor except to help you out. This is why it is usually only done by a close family member.
2. Do A Joint Venture With Someone
Got something of offer you can give to a partner? Maybe they have a deposit but not enough time or income to invest in property.
You could come to an agreement where they front the deposit and you provide something else of value. This may be in the form a labour that is used to renovate a degraded property, or it may be the serviceability which comes from having a high income.
I suggest seeking professional financial and taxation advice before investing with a partner. Have an exit strategy if things go well and (more importantly) have an agreed upon exit strategy if things don’t go 100% to plan.
3. Consider Purchasing Via Owner Finance
If a guarantor or joint venture isn’t a viable option then you could also consider owner finance.
Owner finance (also know as seller finance or vendor finance) is when you purchase a property, but instead of the banks lending you money the original owner of the property extends a loan to you.
Usually you will pay slightly higher than market rates for the property and you will also be required to pay above market interest rates as well, but often you will be able to supply a smaller deposit or no deposit at all. A lot of the strict lending criteria that banks require you fulfil may also be removed.
The majority of people who purchase via owner finance then go to the banks or more traditional lenders in just a couple of years and secure a cheaper loan with them. When this happens they pay out the original owner in full, assume the title for the property and the property becomes a standard investment property.
Other Things To Do If You Can’t Afford a Deposit
If none of the above examples are suitable for you then there are some other things you can consider doing to put yourself in the financial position to begin investing in property
- Rent to own arrangements (be careful)
- Use rental history as ‘proven savings’ for the bank (deposit still required)
- Get a second job and save every penny from it
- Start a business on the side
- Work odd jobs to earn extra cash
- Ask for a pay rise or change companies to achieve a higher income
- Live off your base salary and save commissions
- Begin investing in shares (lower barrier to entry) as a way to grow your deposit
- Continue learning about property investment strategies so when to time comes you are ready to invest right
- Secure an extremely long settlement. Renovate the house and get it revalued above the purchase price
- Listen to personal finance audiobooks