4 ways LMI can help unlock your home ownership dream this year
When used properly, Lender's Mortgage Insurance (LMI) can help assist you in getting into a home.
Sponsored by Helia. As a leading provider of lenders mortgage insurance (LMI), Helia makes it easier and faster for homebuyers to purchase property. T&Cs apply.
Lender's Mortgage Insurance (LMI) can help a broad range of buyers across a range of financial circumstances.
1. Get onto the property ladder sooner
One of the biggest advantages of LMI is that it can allow you to get onto the property ladder more quickly.
Saving a 20% deposit is time-consuming. Although there can be good reasons to opt to save for longer, it also means you'll be waiting longer to buy a place.
Research from Helia's Home Buyer Sentiment Report suggests that a couple on a median wage in Sydney would now take around 13 years to save for a 20% deposit on a house, and 8 years for an apartment.
This is a significant amount of time plus years of disciplined saving. It also doesn't take into account factors such as rising house prices, fluctuating interest rates and changing borrowing policies.
By contrast, with LMI, you could enter the property market sooner rather than later, rather than waiting years to accumulate a 20% deposit.
Take a look at this short educational video, comparing two couples who have the same deposit amount, looking to buy a similar home in the same area.
As we see – based on certain assumptions, including a rising property market1 – over time, both couples have had significantly different outcomes in relation to their home ownership journey.
One couple secured a home more suited to their long-term needs. They were approved by their lender to borrow a larger loan amount and paid the LMI fee to purchase their home sooner, rather than waiting to save a larger deposit for a more extended period.
The second couple also decided to buy a home at the same time. However, they didn't want to pay extra for LMI cover, so they bought a smaller home with fewer extras.
Over time, both homes in this example have grown in value. With this said, the larger home had a larger increase – larger than the initial LMI fee paid.
The video illustrates how a well-informed decision by home buyers, working in conjunction with an effective mortgage broker, could significantly impact home ownership.
2. Stop renting and build equity for your financial future
Paying rent can feel like 'dead money' with no tangible benefit in the future.
With rent prices predicted to rise further into 2024, it is worth considering whether your money could be better used to service a mortgage. With LMI, you can transition from being a renter to a home owner, as it can enable you to secure a mortgage with a smaller deposit.
It's a sentiment shared by many renters in Helia's Home Buyer Sentiment Report. 39% of surveyed renters are currently looking at buying their own property, at least in part due to feeling that renting is no longer affordable.
Another advantage of choosing to buy vs continuing to rent is that you may be able to build equity sooner, which means that you are investing in your future and building long-term financial security.
For example, if you utilise LMI to buy a home right now, you might spend the next several years building equity. If you decide you need a larger home, or want to own an investment property, having existing equity may put you in a better position when you speak to lenders.
3. Enhance your borrowing power
LMI can also be used to enhance your borrowing power. With LMI, lenders are often more willing to extend larger loans (subject to satisfying their loan suitability and eligibility requirements), allowing you to purchase a better property than was previously possible.
In practical terms? Leveraging LMI can allow you to buy a larger home that better suits your current and future needs.
As we saw in the video, both couples were armed with the same deposit and seeking homes in the same area. One couple was able to secure a better, larger home with a smaller deposit but paying the LMI fee, while the other couple bought a smaller property with their 20% deposit, unaware of the option of LMI.
The couple who opted to pay for LMI were able to broaden their options and purchase a home that met their long-term needs and desired lifestyle. Having bought a bigger home, they could stay in their home for longer.
4. No need for the Bank of Mum and Dad or a guarantor
Traditionally, first home buyers without a substantial deposit may get help from the so-called 'Bank of Mum and Dad' or guarantor.
While this may be an option for some, not everyone's family has the resources or desire to help.
In fact, the Helia Home Buyer Sentiment Report found that 58% of those surveyed hadn't had any offer of help from parents. An additional 12% of those surveyed had been given an offer by their parents, but only reluctantly.
LMI can offer an alternative solution and eliminate the need for significant financial contributions from family members or the involvement of guarantors.
Instead, it allows you to secure a mortgage independently, based on your own financial position. This can be empowering, enabling you to take control of your home ownership journey without relying on assistance from family members as guarantors.
Helia's Deposit Comparison Estimator is designed to help aspiring home buyers with less than a 20% deposit get insights into the deposit options available to them.
It estimates costs across six scenarios, from saving for a full 20% deposit, buying with LMI, buying with a guarantor, to buying with a government scheme. Each deposit option displays key benefits, the key considerations of each option and can enable prospective buyers to make more informed decisions.
With the right approach and resources, this could be the year you get the key to the door of your own home.
Learn more about LMI with Helia
Sponsored by Helia. As a leading provider of lenders mortgage insurance (LMI), Helia makes it easier and faster for homebuyers to purchase property. T&Cs apply.
