Published on May 16th, 2017
Alternative strategies for financing a homeWith property prices climbing steadily upwards, first home buyers and investors alike may choose to explore other forms of finance. For those who have a negative credit history, or a sporadic income that banks deem to be too high risk, alternative approaches may be ideal.
Before striking out on your own, turn to the professionals. Mortgage brokers will be able to help you present your financial situation to a financier in a way that’s more likely to impress them, and obtain you the loan you need. Mortgage brokers also deal with a wide range of financial institutions, and not just the ‘Big Four’ banks, giving you access to options you may not have known existed. John Rolfe, Head of Elders Home Loans, shares his advice on alternative strategies for getting your foot on that property ladder.
Government Backed Financial Institutions
In both South Australia and Western Australia there exist government mortgage providers which “are there to help those people who can’t be assisted by mainstream lenders”, says Rolfe. In South Australia, the entity is HomeStart Finance, and in Western Australia it’s KeyStart Finance.
This is a great place to start for people who struggle with a deposit, as they will lend up to 97 or 98% of the purchase price. Because they’re self-insured, they do not require the borrower to take out mortgage insurance. They’re also able to assess people whose credit history has been negatively impacted in the past as long as they’re sure that they’re able to meet obligations, and they will take into account government income such as Family Benefit when assessing affordability. Sole traders and other people with sporadic incomes may also benefit from
Interest rates are slightly higher than may be offered by mainstream lenders, and loans are restricted to owner-occupiers rather than investment purchases, but for people who just need that first toe in the door, they can be ideal.
Shared Equity Loans
Shared equity, says Rolfe, is ideal “where somebody might be able to afford a cheap property in a not-so-desirable suburb but might want to live in a better suburb and access better schools or other services”. The ‘KeyStart Model’ comes into play here as well, with institutions providing part of the lump sum needed to purchase a property in return for a proportion of the equity.
In South Australia, for example, HomeStart takes 1.4% of the growth at sale. That means that if they provide 30% of the initial purchase price, they’ll recover 42% of the eventual sale price. The Western Australian model is more restrictive in its availability, but KeyStart only recovers equity on a 1:1 basis, so that 30% deposit will return them 30% of the eventual sale price. In both cases, buyers can ‘buy back’ some or all of the shared equity during their tenure in the house, reducing the amount that will be recovered on sale.
Other Government Programs
While we’re waiting for the model to be rolled out nationally, it’s worth knowing that every State has its own government programs that are designed to assist people in certain circumstances. Those programs “go well beyond first home owner grants”, says Rolfe, but it’s worth talking to a mortgage broker to find out if you’re eligible to access them.
So if you’re keen to buy your first home, but it seems like the barriers are insurmountable, don’t despair. A good mortgage broker can offer a wealth of knowledge about pathways to home ownership you may not have known even existed.