Page 42 - Smart Money

Chapter 2

have got at least 40% equity in that property. They need to have 20%
equity to avoid mortgage insurance, and then they need to give you 20%
of their equity as well. Basically, the title of your parent’s house goes
back to the bank if they don’t have a mortgage on it. If they do have a
mortgage, then your bank will take a second mortgage on the property.

You don’t have to go to the same bank that your parents have their home
loan with. Some lenders won’t allow second mortgages, so then you
might have to use the same bank. But if the lender does allow other banks
to take a second mortgage, then that is okay. Just be aware that, at any
stage, a bank can refuse a second mortgage; it is not a given that the bank
will allow it.

Getting your finances in order means saving up enough of a deposit, or
getting access to enough for a deposit. The minimum is 2% if you are a
first home buyer in Western Australia. In other states it is 5% in genuine
savings. You may also need a few thousand dollars for mortgage insurance,
depending on which lender you use. Not all banks will add the entire
mortgage insurance on to the loan; some may want it paid up front.

Case Study
For example, for a $400,000 loan, you’d need a $20,000 deposit, about
$3,000 for fees and then roughly 1% for mortgage insurance as well,
which would be about $4,000. So that comes to about $27,000 on a
$400,000 property. Most of the mortgage insurance can be capitalised,
but it’s best to allow for it on top, just in case. At a 95% lend, lender’s
mortgage insurance (LMI) will normally take the loan amount up to 98%
of the purchase price. Most lenders will only lend up to 97%, capping
the LMI, so then you have to make up the short fall, approximately 1%.
The fees you will pay include conveyancing or settlement agent fees,
land and water rates, and any government fees as well.

Western Australia is similar to the other states. The conveyancing would
be about the same and land rates would be much of a muchness. We always
over estimate, so $3,000 for fees is probably around $500 over what you

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