Borrowing without savings​

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I’m going to bet that this will be the most popular post we write in this series. And rightly so.

 

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As we have already covered we think that in 2021 it’s harder to remain an active member of society and save a house deposit than any other time in history. And it’s not going to get easier.

 

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Is there another alternative?

 

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In short, yes. In fact there are several.

 

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Good rental history as genuine savings

In some circumstances it can be possible to use a clean rental ledger as an alternative source of ‘genuine savings’ without necessarily having to have saved the money.

 

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This doesn’t mean that the bank is going to lend you anymore, which means you'll still need to come up with the deposit.

 

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Parental Guarantee

This is can be used for cases where neither savings nor rental history is an option.

 

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Deposit Gap Loan

“Rare as hen’s teeth” is how some put it when asked whether they exist and “unicorn” is how others describe the lender who will accept it as deposit funds.

 

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In reality however, under certain circumstances this is a perfectly acceptable method for raising the deposit and will be accepted by the unicorns. Here’s why we think that under the right circumstances it’s a good idea.

 

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1. Accelerated equity

Taking our a short term loan for part or all of the deposit means that you’re forced to pay down that portion of the loan faster.

 

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2. Save money

The difference between a 90% loan and a 95% loan can mean a fortune in extra lender’s mortgage insurance. Even at rates 5 times more than a mortgage - the total interest cost of a deposit gap loan would be less than the LMI and interest of that amount on a home loan.

 

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3. Stress test

If you can afford to pay the mortgage and Deposit Gap Loan then you’ll be in a much stronger position once you’ve repaid that loan.

 

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Pro tip: we know where unicorns live and have the hen’s tooth necklace you’ll need to wear when going to find them.