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5 Great ways to avoid Lenders Mortgage Insurance (LMI) on your home purchase

5 Great ways to avoid Lenders Mortgage Insurance (LMI) on your home purchase

When it comes to financing a home in Australia, many potential homeowners may encounter the need for Lenders Mortgage Insurance (LMI). LMI is a financial product that protects lenders in the event of a borrower defaulting on their home loan - essentially it’s a “risk fee”. However, it is an additional cost that can significantly add to the overall expense of purchasing a property. In this blog post, we will explore 5 ways you can avoid paying LMI, which can sometimes cost $20,000+ on top of a standard home loan! 1. 20%+ Deposit One of the most straightforward ways to avoid mortgage insurance is by saving a deposit that equals or exceeds 20% of the property's purchase price. Lenders often require borrowers to pay for mortgage insurance when the deposit falls below the 20% threshold. By saving a larger deposit, you demonstrate to lenders that you have a greater financial capacity and therefore pose a lower risk, eliminating the need for mortgage insurance. 2. Using a Guarantor Another option to circumvent mortgage insurance is by enlisting the help of a guarantor. A guarantor is typically a family member who agrees to use their property as additional security for your home loan. By leveraging their equity, you may be able to secure a better loan-to-value ratio and avoid the need for mortgage insurance altogether. However, it's important to consider both the benefits and potential risks associated with a guarantor arrangement before pursuing this option. 3. Using the First Home Guarantee Scheme The Australian government's First Home Guarantee Scheme (FHBG) aims to support first-time homebuyers (or previous homebuyers who haven’t owned a home in the last 10 years) by providing access to home loans with a deposit as low as 5%, without requiring mortgage insurance. This initiative can be an excellent opportunity for eligible individuals to enter the property market sooner and avoid the additional costs associated with mortgage insurance. It's essential to check the eligibility criteria and availability of this scheme, so please reach out to our team HERE if you want to see if you qualify for the FHBG. 4. Using the Family Home Guarantee Scheme The recently introduced Family Home Guarantee Scheme (FHG) is designed to assist single parents with dependent children in purchasing a home. Under this scheme, eligible single parents can secure a home loan with a minimum deposit as low as 2%, without the need for mortgage insurance. By taking advantage of this government initiative, single parents can avoid the additional financial burden of mortgage insurance and achieve their homeownership goals. As per the FHBG, there are certain criteria that need to be met, so reach out to us to find out more on this offer for single parents. 5. Using Keystart as a Lender Last but not least, one of the most common options for Perth homebuyers to avoid LMI is financing through Keystart. Keystart is a government-backed lender in Western Australia that offers home loans with low deposit requirements and no mortgage insurance. They provide an alternative option for borrowers who may not meet the deposit criteria set by traditional lenders. By opting for Keystart as a lender, eligible buyers can avoid mortgage insurance and access affordable financing options tailored to their unique circumstances. In saying that, there are purchase price limits, income limits, and other requirements that are unique to Keystart, so keep in mind that not everyone will meet their strict criteria. To summarise, LMI can significantly increase the costs associated with purchasing a property, making it important for potential homeowners to explore strategies to avoid it. By saving a deposit of 20% or more, utilizing a guarantor, taking advantage of government schemes such as the First Home Guarantee Scheme or the Family Home Guarantee Scheme, or considering lenders like Keystart, borrowers can successfully navigate the home loan process while bypassing the need for mortgage insurance. Remember, most of these options have quite specific qualifying criteria, so the best way to find the most suitable loan product for you is to have a chat with the team at Neptune Finance Australia. To do so, either send us a quick message HERE, or call the team directly on 08 9200 4840.

As Always - the information in this blog post is general only and shouldn't be constituted as advice. Your complete financial situation will need to be assessed before acceptance of any proposal or product.



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