How we avoided Mortgage Insurance for a First Home Buyer

Scenario

There are a couple of ways that you can avoid paying costly Lenders Mortgage Insurance (LMI).

In a recent example, a first home buyer wanted to purchase their first home with less than 20% deposit, however a family member had offered their support to help avoid significant LMI costs.

Challenges Faced

Our client wanted to purchase their first home for over $1M, however the client did not have sufficient savings to avoid LMI costs.  LMI costs are generally applicable when the proposed loan is greater than 80% of the purchase price.

The client wanted to avoid significant LMI costs of up to $15,000 being added to the loan, which they could do by gaining “security support” from their parents.

Aside from ensuring the client’s personal and financial position met all standard Lender requirements, we needed to make sure that the loan structure and equity available in the parents’ property met specific Lender policies and requirements for “Family Guarantee/Security Support”.

Outcome

We were able to source a highly competitive Lender and loan option for the client; a Lender who accepts family security support to help customers avoid LMI costs, whilst also providing very competitive interest rates.

The lending solution also allowed our clients loan to be introduced to a different bank with a more competitive interest rate and suitable loan compared to the parents existing mortgage; we had to clear this with the parents’ existing Lender to make sure they allowed the new bank to take a “second mortgage” over the parents property. This is not always possible as Lender policies and requirements differ and sometimes require the new loan to be introduced to the same bank as the parents’ loan!

The result was the client now has two highly competitive loans:

1. a larger loan which is supported by the purchased property, and;
2. a smaller loan which is supported by the purchased property and a “limited guarantee” over the parents’ property

The client’s goal is to pay the smaller limited guarantee portion down first to help release the parents’ property as soon as possible!