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Bill and I would like to thank you for your assistance in securing our most recent loan. This is the second time we've used your services and on both occasions we've been delighted with your quick, diligent and...

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Escape the Rent Rut

Q. My husband and I pay a large amount of rent each week, which we see as dead money. We both have well paid jobs and we are sure we could pay off a home. Our biggest problem is that whilst we are paying rent, we can't seem to save a deposit. We have enough saved for all the costs associated with buying a home but the deposit just seems to be out of reach.

Is there any way we can get a loan to but a home without calling on help from our parents?

Frustrated Renter

A. Over the past 6 to 12 months, many lenders have opened up the home loan market for people in exactly your position. People who have good jobs with stable employment and living arrangements and who can demonstrate the ability to pay off a home, but just can't seem to get the appropriate deposit saved, may now be able to successfully apply for a home loan.

This need has led to a number of lenders offering 100% or No Deposit Home Loans. These loans are exactly what the name states; the lender will allow you to borrow 100% of the purchase price of the home. In some cases the lender will even allow you to borrow the costs associated with buying a home, leaving your savings to buy furniture, curtains etc.

These types of loans are not for everyone. The lending criteria is tougher than a normal type of loan (as risk is higher to the lender). Interest rates are normally higher as well. In this regard though, it may be better to pay a higher interest rate for a few years to get into the market rather than continue try to save a deposit.

By way of example, if you were to purchase a property worth $280,000 with a 1% higher interest rate, it would cost an additional $2,800 annually. This would be more than offset if the same house increased in value 5% each year, being an increase of $14,000 annually.

The trick in these situations is to be well informed and to do your homework. With this in mind, you first point off call would be to contact the office to find out if you meet the criteria and discuss pros and cons of 100% home loans. They can be the right answer in the right situation.

This article is reprinted from our quarterly published "FINANCIAL MATTERS" Newsletter, Winter 2006 issue.



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