Buying A Second Property With No Deposit

How Do I Buy A Second Property With No Deposit?

It can be tough to save up enough money for a down payment on a house. But don’t worry, there are ways around it.

Here are four options for buying a second property with no deposit:

Equity Loan

Equity is the difference between your property’s value and the amount you owe on your home loan. You can use your built-up equity to finance your deposit for a second property. You can generally release up to 80% of the value of your property, minus what you still owe on it, for this purpose.

To qualify for an equity loan:

• You must owe less than 80% of the property value on your home loan.
• Your home loan repayment history must be perfect.
• You’ll need to provide your last two payslips.
• You’ll need to provide your most recent group certificate.
• Low doc options are available for self-employed borrowers who can’t prove their income through traditional means.
• Your credit file should be clear of bad marks.

Depending on how much equity you have, you can refinance to access it and cover the cost of your deposit as well as the other costs of purchasing a property.

Call us on 1300 889 743 or complete our free assessment form if you want to get an equity loan to buy a second property with no deposit.

Cash-out

Cashing out is when you draw cash out of your equity and use it as your deposit to purchase a second property.

Generally, it’s best that you provide a letter from your conveyancer confirming that you’re looking for a property, or a copy of the Contract of Sale to prove you’ve found one.

Some lenders have restrictions limiting the amount you can cash out to anywhere between $10,000 and $50,000.

Cross-collaterisation

This means using your existing home as security for the new purchase, bringing both properties under the one home loan.

To do this, you must owe less than 80% of the property value of your home.

There are pros and cons to cross-securitising, which you can read about on our page on the topic, here.

Line Of Credit

If you’re on a professional package and in a position to do so, you can refinance your current home loan and open a Line of Credit (LoC). A LoC works very much like a large credit card, and it’s beneficial if you need a deposit to buy an investment property. Depending on the amount of equity you have and the strength of your financial situation, you can increase your LoC borrowing limit to fund renovations and general improvements to the property you’re purchasing.

There are pros and cons to a Line of Credit facility that you can read more about line of credit

Joint Ownership

Do you have a strong income? Have you found a great investment opportunity, but can’t quite scrape together the deposit because of your current home loan commitments?

Joint ownership can allow you to buy a second property with a co-borrower who has the deposit to put towards the purchase.

It’s essential to seek financial advice before considering this form of ownership because there can be problems if you decide to sell the home. You also have to consider how to share the ongoing costs of ownership.

Vendor Finance

Vendor finance, or owner’s finance, is risky and costly.

Check out the vendor’s finance page for more information about this option and whether it’s right for you.

What About A Guarantor Home Loan?

A guarantor loan is generally only available to first home buyers as a no deposit option.

However, some lenders may allow you to ask your parents for help if divorce, illness or other circumstances outside of your control are forcing you to sell your home and/or downsize.

Why Should I Buy A Second Property With No Deposit?

Long-term Property Investment

There’s an old saying that it’s not about timing the market but time in the market.

In saying that, taking advantage of a great investment opportunity when you see it requires you to move quickly. The market just won’t wait around for you to save the deposit you need. A no-deposit option gives you the ability to leverage the equity in your home to buy now.

Over the long term, you’re potentially reaping a higher capital-growth return by minimising how much of your own savings you put into the purchase.

It also allows you to keep your cashflow fluid so you can invest in other properties or undertake capital improvements to the property.

Having cash on standby is usually a good investment strategy.

Short-term Investment

House flipping – buying a home to renovate it and re-sell it quickly – is common among investors with renovation experience who do their research.

The trick is to buy at what you believe to be below-market value and undertake minimal renovations to sell at a higher price for a return on investment.

Buying Your Dream Home

Good properties don’t stay on the market for long, whether you’re an investor or a homebuyer.

The first property you buy isn’t typically the one you want to stay in for the rest of your life.
It could be that you’re expecting children and want to upgrade to a bigger home or you’ve changed jobs and need to move to a new location.

When there’s a property that has everything you need, using a home equity loan can help you avoid heartache.

Alternatively, it may be that you’re not in a position to move just yet, but you want to get in early, buy low, and rent out the property in the meantime.

Divorce And Separation

Separating from a partner is never easy, but it’s possible to ease the transition to a new property using the equity in the existing home.

This is common for couples with children, where the mother will stay in the family home while the father will move out.

Holiday Home

Holiday homes aren’t generally as expensive as the home you live in because they tend to be located outside of major cities.

So it may be possible to use equity to cover all of the purchasing costs.

Bear In Mind Property Purchasing Costs

What many second homebuyers don’t fully take into account are the property purchase costs.

These costs can amount to anywhere from 3-5% of the property value, so you should factor this in when you’re deciding on a no-deposit solution.

Essentially, to purchase a second property, you actually need 7-10% of the property value to cover:

• Your minimum 5% deposit.
• Stamp duty
• Property title transfer fee.
• Registration fees.
• Conveyancing fees.
• Inspections including building/strata and pest.
• Home loan set up fees.
• Lenders Mortgage Insurance (LMI).

Want To Buy A Second Property With No Deposit?

Call us on 1300 889 743 or fill in our online enquiry form to find out if you can use the equity in your home.