Although most property owners know they can achieve an LMI waiver by paying a 20% deposit upfront, many don’t know that there are various other ways to qualify for a waiver.
For example, if you work for a particular profession and/or earn above a minimum amount, you can access the LMI waiver for professionals.
Or, if you’re a first-time buyer you could qualify for the home loan deposit scheme.
So, how do you access these LMI waivers?
Well, here’s what you need to know.
What Is Lender’s Mortgage Insurance and How Does It Work?
When homebuyers take out a home loan, their lender takes on the risk of homebuyers potentially defaulting on their monthly mortgage repayments.
If that happens, lenders can repossess the property that the home loan is tied to recover what’s owed to them. The problem, however, comes when the property’s value has fallen below the purchase price. In those cases, the lender will fall short and can’t cover what was lost.
So, LMI is an insurance policy that will help the banks and lenders cover the shortfall if you cannot meet your obligations.
Lenders take out LMI from an independent mortgage insurer such as Genworth Financial or QBE. And while the insurance covers the lender, the borrower has to cover the cost.
LMI is typically added to your home loan, which you’ll be charged interest on along with the rest of your loan.
Keep in mind that an LMI premium is generally non-refundable. So, if you decide to switch your home loan to another lender, for whatever reason, it’s likely that you’ll have to pay LMI again.
Who Has To Pay Lender’s Mortgage Insurance?
Lenders generally require homebuyers to take out an LMI policy where their deposit is less than 20%. In other words, they are taking out a loan where the loan to value ratio is more than 80%.
If the borrower defaults on their home loan, that 20% deposit is enough of a buffer to cover the property’s depreciation costs.
So, if you are planning on buying a home or investment property in the future, waiting a few more years until you can pay your 20% deposit upfront can save you thousands of dollars in the long run because you can avoid paying lenders mortgage insurance.
Who Isn’t Required To Pay Lenders Mortgage Insurance?
Fortunately, in some circumstances, even if you don’t have a 20% deposit, there are some ways around paying LMI.
LMI Waiver For Professionals
Some lenders and banking institutions offer an LMI waiver for professionals.
The idea behind offering an LMI waiver for professionals is that lenders and banks typically consider professionals low-risk borrowers because they are generally high income-earning individuals and their incomes are usually stable, so they represent a low risk for defaulting on their loans.
For example, medical professionals who belong to the Australian Medical Association are eligible to apply for an LMI waiver.
When applying for a home loan, lenders require consistent monthly payslips. But, because medical professionals don’t have such a straightforward employment structure, their payslips can be all over the place with various partnerships, locuming, private practice, and public practice.
Now, although home loan eligibility criteria require consistent payslips, medical professionals can access LMI waivers because of their high-income bracket. In addition, because they earn a higher salary than most professions, they are considered low risk since they rarely default on their mortgage repayments.
Each lender offers LMI waivers to its own approved list of professionals. However, select professionals that can apply for LMI waivers for similar reasons include:
- Legal professionals
- Quantity surveyors
- Mining specialists and mine surveyors
- Entertainment industry professionals
- Chief financial officers
- Professional athletes
First Home Buyers Using a First Home Loan Deposit Scheme
If you’re buying property for the first time, you should consider applying for the federal government’s First Home Loan Deposit Scheme (FHLDS).
This scheme enables some first home buyers to borrow up to 95% of their new home’s purchase cost and effectively only pay a 5% deposit – and avoid paying LMI.
Instead of the home buyer having to pay the cost of LMI, the government does so for them and acts as a guarantor.
There are, of course, various eligibility criteria: there’s a maximum loan size, and the house must be bought as residential property for an owner-occupier rather than for investment purposes.
Borrowers Who Have Guarantors
If you are thinking of taking out a home loan to buy property, and your parents have their own home, you could ask them to be guarantors of your home loan.
When you take out a family pledge loan, lenders use the equity of your parents’ property as security to back your loan and make up the deposit.
Even if your financial situation can afford 15% of the deposit on your home loan and a guarantor only pledges 5%, the LMI will still be waived altogether because you would’ve met the 20% requirement to waive LMI.
How The Mortgage Agency Can Help You Access an LMI Waiver
Paying lenders mortgage insurance on your property can end up being a significant expense.
Before applying for a home loan, it’s worth carefully looking into your personal circumstances and financial situation, and whether you can qualify for an LMI waiver.
The easiest way to do so is to save 20% of your deposit and pay that money upfront.
However, the following professionals qualify for certain benefits when applying for a home loan, and LMI waivers could be one of them:
- Medical professionals
- Legal professionals
- Quantity surveyors
- Mining specialists and mine surveyors
- Entertainment professionals
- Chief financial officers
- Professional athletes
And, if you are a first home buyer, you could apply for the FHLDS (if you are eligible) and have the government guarantee some of your deposit to avoid LMI.
Or, you could ask your parents to offer up their home as security and become guarantors of your home loan, in turn saving you the huge cost of LMI.
This is why it can be useful to employ the services of a mortgage broker. At the Mortgage Agency, our brokers assess your personal circumstances and financial situation and give you an educated opinion on which lender to pursue your home loan application with.
What’s more, we have good relationships with most lenders and will negotiate the best deal for all our clients.
Whether you’re a first home buyer or looking to grow your investment property portfolio, get in touch with us to find the best LMI waiver solution and guide you through your journey to homeownership.
Disclaimer:
Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to property buyers and investors. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal, tax or investment advice. You should, where necessary, seek your own advice for any legal, tax or investment issues raised in your affairs.
