The RevUp guide to home loans: Guarantors, grants, genuine savings and more

Hands up if your number one financial goal is to buy a home?

Now hands up if you’ve saved your 20% deposit, or are close to reaching it?

A lot of hands just went down, huh.

If yours was one of them, it’s not because you’re not working hard enough or are hopeless at saving. It’s because as property prices have risen, so has the amount required to pay a 20% deposit; did you know the median price for a home in Australia is now more than $700,000, making a 20% deposit worth a staggering $140,000? 🤯

If that seems out of reach, we might have good news for you.

There’s more than one way to mortgage

Thankfully, the government, banks and other lenders have recognised the need for new, more flexible home loans. In this guide, we’ll talk you through the best of them, including:

1. Guarantor loans
2. Keystart loans
3. The First Home Owner’s Grant
4. Construction loans
5. Low deposit loans

1. Guarantor loans

Otherwise known as the Bank of Mum and Dad.

They’re popular lenders for a reason, and there’s four ways you can work with them:

1. The traditional guarantor loan: when your parents use their own home as security on yours. It means you’ll pay a much smaller deposit, avoid Lender’s Mortgage Insurance and be able to borrow up to 110% of your home’s purchase price.
2. The unofficial loan: when your parents give you a set sum and you agree to pay it back. The bank isn’t involved and the terms don’t need to be legally documented.
3. The gift: when your parents give you a set sum and you never have to pay it back. If your parents are able to. Think of it like an early inheritance. It doesn’t have to be the whole deposit either, every little bit helps.
4. The pool: not the one you swim in. The one where you and your parents combine resources and own the home together. You may have greater buying power as joint owners, have a higher borrowing capacity, and be able to pay off your loan sooner.

2. Keystart and other government loans

There are a range of government initiatives country-wide to help young Australians into home ownership. The most well-known of these in WA is Keystart.

It stands out because:

1. The required deposit can be as low as 2%
2. You can use your FHOG (First Home Owner’s Grant) towards your deposit if you decide to build a new home
3. You’ll be exempt from Lender’s Mortgage Insurance
4. And you can use it to build or buy established

There are eligibility requirements of course, such as income and property price limits (you can’t use it to buy a million-dollar mansion). The focus is also on helping people into home ownership, so you must be intending to live in the home as an owner/occupier and not put it out to rent or use it for any other purpose as an investor.

The interest rate for Keystart is on the high side, but they do encourage you to refinance with another lender as soon as you’re eligible.

There are other initiatives around too, like the single parenting scheme for example, but availability is limited. Chat to your broker about the current schemes and which could be suitable for you.

3. First Home Owner’s Grant 

The First Home Owner’s Grant–or FHOG–is a one-off $10,000 payment from the government to you to help you buy or build a new home. Again, the focus is on owner/occupier properties, not investments.

To be eligible you must:

1. Be a real person (not a business or trustee).
2. Be over 18 years old.
3. Be an Australian citizen or permanent resident.
4. Never have owned a home in Australia before.
5. Never have received the FHOG before.
6. Choose a home or house and land package worth less than $750,000.
7. Live in your new home for a continuous period of at least six months within the first year.

FYI: The grant only applies to those wanting to build a new home or buy a new build – a newly constructed home that has not yet been resided in. It doesn’t apply if you want to buy an established home, though you might be eligible for concessions in some instances.

FYI number two: If there are two of you purchasing the property, neither of you can have received the grant before. And, only one grant is payable per transaction, therefore if two people are purchasing the property, only one grant would be paid.

4. Construction loans

Construction loans are built a little different to a standard home loan.

Rather than one big lump sum, your lender gives your builder five progress payments and you only make repayments on the amount transferred to date. Generally speaking, you only pay the interest portion of your repayment during your home’s construction too, so it keeps your repayments as low as possible until you’ve moved in. Helpful if you need to pay rent while you build, no?

You’ll be required to sign off on the work completed prior to your bank’s next progress payment. The six progress payments happen:

1. When you’re in pre-construction
2. When your slab goes down
3. When your walls are built
4. When your roof frame goes up
5. When your windows and doors are in place
6. When your keys are ready for handover

5. Low deposit loans

If a guarantor loan isn’t an option and you’re not eligible for a grant, the good news is a lot of banks allow you to borrow up to 95% of your home loan. Yep, you can get into a home of your own with just a 5% deposit.

The criteria is a little stricter though. Your lender is going to want to see evidence of genuine savings and charge you Lender’s Mortgage Insurance.

Genuine savings

Genuine savings demonstrate your ability to manage your money. They’re accumulated over a period of time and must have been held in an account in your name for a minimum of three months.

Basically, it proves your ability to repay your home loan. Banks take this seriously, which is why we’re talking about genuine savings here; even a quick $500 sent by your mum to help you reach the amount they’re asking for isn’t going to count.

Every lender has their own policy around genuine savings so it’s always best to speak directly with your bank or mortgage broker. But generally speaking it’s required if you’re asking to borrow more than 80% of your home’s value. Along with…

Lender’s Mortgage Insurance

If you’re unable to keep up with your repayments, the bank may need to sell the property to recover the cost of your loan. If the sale price isn’t enough to cover the outstanding balance, they’ll be left with a shortfall.

If they haven’t adequately assessed your ability to accumulate genuine savings, their insurance claim to cover this shortfall could be declined. Which is why banks are strict about those savings and why anyone borrowing more than 80% of their home value is going to be up for Lender’s Mortgage Insurance (LMI).

LMI protects the bank, not you. But the cost of it is passed on to you. Nice, right?

A quick note on Stamp Duty

Yes, on top your home deposit, you might have to pay stamp duty too. Stamp duty is a government tax charged on purchases including homes, land, or investment properties.

You could be off the hook if you choose a piece of land worth less than $300,000 (very possible) or a house and land package worth less than $430,000 (also entirely possible).

Anything worth more than $430,000 is going to attract stamp duty but if you’re eligible for the First Home Owner’s Grant, you’ll get it at a discounted rate. In some circumstances you can be eligible for the first home owner rate even if you weren’t eligible for the grant. Happy days.

Always talk to your broker about stamp duty pre-purchase so you know exactly what you’ll be looking at.

Bonnie’s wrap

Lender policies are extensive and ever-changing, so it would have been impossible to talk you through them all. But I hope you now know home ownership is never out of reach, no matter your situation.

The big takeaway here is always, always, always talk to your lender or broker of choice about the options available (there’s never just one).

Hands up if that goal feels a lot closer than it did at the beginning of this article? Yeah, that’s what we want to see. ☺️

Here’s your homework:

If you want to find out more about the process of getting a home loan, I want you to read this. It covers the lot:

Everything you need to know about home loans

If you’re gearing up to apply for a home loan in the not-too-distant future, I want you to read this:

What not to do when you want to apply for home finance