Not every borrower has to pay Lender’s Mortgage Insurance. Find out if you may qualify for waived LMI.
Who Has to Pay Lender’s Mortgage Insurance?
Generally, if you’re borrowing more than 80% of the Loan to Value Ratio (LVR) of if you are applying for a low doc loan and are borrowing more than 60% LVR, you’ll have to pay LMI.
If you’re getting ready to apply for a home loan, you’re probably also prepared to have to chalk up a big premium for Lender’s Mortgage Insurance (LMI). Calculated as a percentage of your loan, LMI protects your lender in case you default on your mortgage. Unless you have a large enough deposit, or for other reasons pose less than normal risk as a mortgage borrower, you’ll have to pay this insurance premium in order to be able to take out a home loan.
Whilst LMI makes home ownership accessible for a lot more Australians, let’s face it, it’s not fun having to pay this extra premium. LMI adds to the overall expense of your loan and, depending on how much your premium is and if your lender will capitalise LMI for you, it could impact how much you can borrow – and so what house you can afford.
But, there are situations in which the lender may waive LMI. With a no-LMI loan, you can put more of your money towards paying down your mortgage and buying the home you want.
Do You Qualify for Waived LMI?
There are scenarios in which your lender won’t expect you to pay Lender’s Mortgage Insurance.
Borrowing less than 80% LVR
With at least a 20% deposit, you won’t have to pay LMI. You’ll still need to have a clean credit history and be able to verify your income, but with a large down payment, you pose less of a risk to lenders, so they won’t need the extra buffer of mortgage insurance.
Having a large deposit also makes it easier to qualify for a competitive loan – banks like to see that you’ve been able to save money. It shows that you’re capable of being financially responsible and signals that you’re more likely to be a responsible borrower.
How much do you need to save for a 20% deposit?
With record high house prices in Australia, for many borrowers, it is would simply take too long to build up enough savings for an 80% LVR loan. This is why so many Aussies end up paying for LMI.
Even though demand has slowed in some areas, which has brought down house prices in locations like Sydney and Perth, the median property price in every major metro area is still well over $400k. If you were to purchase a home valued at $430k, for example, you’d need $86k for your deposit in order to avoid paying LMI.
Borrowing 85% LVR
Some lenders will waive LMI for certain borrowers with a smaller deposit. You’ll have to meet extremely strict criteria and apply with the right lender, but that difference between an 85% LVR loan and an 80% LVR loan could mean you’re able to get a loan now without paying LMI rather than waiting a year or two to save enough or adding the cost of the LMI premium to your mortgage.
For an 85% LVR with no LMI, you’ll need to:
- • Purchase a property in a major metro area (properties in metro areas are easier for the bank to sell in the case of a default)
- • Have a flawless credit history
- • You don’t necessarily have to be in a certain profession but you do need a high household income, usually at least $150,000 annually
- • Fall under the lender’s maximum loan size
Depending on your profession, you may be able to qualify for a 90% LVR loan or greater and your lender still won’t require you to pay Lender’s Mortgage Insurance.
Some medical professionals can borrow up to 100% of the property value. You’ll need to be an active member of a relevant industry organisation like the Australian Medical Council or the Australian Dental Association. Preferred medical professionals include:
- General Doctor
- Cosmetic Surgeon
- Emergency Surgeon
If you’re a medial practitioner or any type of specialist doctor, pharmacist, or surgeon, call us on (07) 3146 5732 or contact us online today to see learn about lenders who may be willing to offer you a home loan without LMI. Some banks will even waive LMI for interns.
There are some professional medical fields that won’t help you avoid paying LMI when you apply for a home loan. For example, psychologists, acupuncturists, and naturopaths don’t generally quality for a no-LMI loan. Don’t hesitate to contact us if you aren’t sure – avoiding LMI can make getting a home loan much more cost-effective.
Do you work in another professional field where incomes tend to be high and stable? You may be able to qualify for a 90% LVR loan without having to pay LMI. With an annual income over $150,000 and a loan size under $2.0 million you may qualify if you are a:
- Legal professional such as a lawyer, solicitor, or judge
- Accounting professional
- Entertainment professional
- Professional athlete
- A specialist in the mining and energy industry such as a mine surveyor or geophysicist (a limited number of lenders offer no-LMI loans to professionals these fields)
For first time home buyers who don’t have a large deposit and who are not high-earning professionals, there is one more way to qualify for waived LMI. If you have a guarantor – a close relative who also owns property in Australia and who is willing to assist you in securing your loan – you won’t need to pay Lender’s Mortgage Insurance. With guarantor loans, you won’t need a deposit at all. This can make entering the property market a lot easier.
Still, guarantor loans will force your parent or another family member to be tied directly to your financial life, which is why guarantor home loans won’t work for everyone.
You can call us on (07) 3146 5732 to find out if you’re likely to qualify for a guarantor loan or any other type of waived LMI home loan.
Why Do Banks Waive LMI for Professionals?
There’s a very good reason why some lenders will waive LMI if you meet certain professional and income criteria. From the bank’s perspective, professional borrowers are their preferred customers. Lenders know borrowers in certain fields are less likely to default. They also almost always make their repayments on time and there’s a good chance they’ll borrow a large loan. The lender gains more profit because of the above average loan size, plus, there’s only a small chance they’ll incur the costs that come from dealing with late repayments or a default.
If you’re a professional, find out if you can take advantage of waived LMI. Depending on the size of your loan and your deposit amount, with a no LMI loan, you may be able to save thousands of dollars.
Talk to one of our mortgage specialists to learn more. We know which lenders like to work with certain professional borrowers, and which lenders will work hard to attract your business. Call us today on (07) 3146 5732 or contact us online today.