WHEN TO USE A PERSONAL LOAN AS A DEPOSIT FOR A HOME LOAN

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WHEN TO USE A PERSONAL LOAN AS A DEPOSIT FOR A HOME LOAN

Home loan hack #1: Using a personal loan as a deposit

So the big question is:

Can I use a personal loan as a deposit for a home loan?

The Answer is:

YES you can!

Most people take six months and more trying to save for a deposit only to find after six months, they are stuck in the same place as when they began. Which makes saving a deposit seem impossible!

There are a few criteria you need to be aware of before attempting this hack.

1. Speak to someone who can make it happen.

2. You will need to be on high income to support both loans for personal loans of $35,000.00 and higher.

3. You need to have little existing debt.

4. A clear credit history.

5. A proven rental history (preferred).

6. Using a guarantor will greatly increase your lender availability with this type of strategy.

How much can I borrow?

It is relatively easy to borrow up to $20,000 as a personal loan and then 95% of the value of your property as a home loan.

So if you need to come up with a deposit for a $500,000.00 home loan, you will need to borrow $25,000.00 as a personal loan.

Borrowing up to $70,000 as a personal loan is possible for high income professionals who do not have much existing debt. If you qualify for such a large loan, then it may be possible to borrow 100% and buy a home with no deposit at all.

If you can also show you have paid off previous loans, it will work in your favour.

How much are the personal loan repayments?

A personal loan with a term of five years will normally cost around $60 / week for every $10,000 that you borrow.

A personal loan of $20,000 may be quite manageable however a larger personal loan will really eat into your budget unless you have a high income.

Most home buyers who use a personal loan to fund their deposit will try to pay off the personal loan first before they make extra repayments to their home loan.

If your home increases in value, then you can refinance your home loan to pay out the personal loan altogether.

How does it work?

Once the personal loan is approved, your home loan can be submitted to be pre-approved. The personal loan may be advanced before the home loan to allow you to put down a deposit when you sign the contract of sale.

Most major lenders won’t accept this kind of application because of “genuine savings” policy, however there are some specialist lenders who will consider your application. The interest rate may be higher and there may be LMI included.

The good news is that you can refinance if equity goes up to a major lender with a lower interest rate and consolidate your debt.

You can buy at auction or via a private purchase if you have a valid pre-approval. Because you do not have the additional funds required if a valuation comes in low, it is recommended you avoid an auction if possible. It is also better to buy a property with a cooling off period.

What do I do Next?

Hit the button below and complete the simple assessment.

Remember to click “Another Loan“ in the deposit question.

Good luck and happy house hunting!

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