Regarding the cost of home loans, you might think mainly about your regular repayments, impacted by your interest rate and loan amount. But what about the upfront costs of buying a home in Australia?
You need to account for Stamp Duty and additional fees. On top of that, borrowers with a high loan-to-value ratio (LVR) usually have to pay Lenders Mortgage Insurance (LMI) which can be up to 4% of the purchase price —but there are ways around it.
Depending on the situation, there are scenarios where you see waived LMI in Australia, so it can be helpful for borrowers to see if those LMI waivers apply to their home loans.
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Can you get an LMI waiver with a 20% deposit?
Lenders Mortgage Insurance is a one-off insurance premium that protects the lender and is paid for by the borrower. You only have to pay LMI if you borrow more than 80% of the property's value—meaning a loan with a deposit of 20% is exempt from paying Lenders Mortgage Insurance.
Is LMI waived on home loans for first-time buyers or borrowers?
First-home buyers may find they can get an exemption from paying LMI if they apply for the Australian Government’s First Home Guarantee (FHBG), previously known as the First Home Loan Deposit Scheme. Participants in the 35,000 place scheme have the Government act as a guarantor, meaning they would cover your loan if you were to default.
Deposits under the FHBG are for home loans between 5-15% and are exempt from LMI. The reason why is that since the Government is making the loan less risky, there is no need for LMI.
First-home buyers aren’t the only ones who can participate, though. Recent changes to how the First Home Guarantee’s eligibility criteria work has meant that borrowers who haven’t owned a home in ten years can also get their high LVR loan guaranteed too.
Does my job qualify me for an LMI waiver?
Borrowers in certain professions who are earning a certain level of income can also be exempt from paying LMI. Lenders will waive LMI for specific professions as high-income earners in stable professions are seen as low-risk borrowers—even with a high loan-to-value ratio (LVR) loan.
Professionals that can get an LMI waiver generally include:
Medical professionals
- Medical professionals that are members of a professional organisation such as the AMA (Australian Medical Association). This includes doctors, dentists, optometrists, pharmacists, nurses, midwives, chiropractors, veterinarians and podiatrists, occupational therapists and physiotherapists.
- Australian medical professionals can qualify for an LMI wavier for loans up to $4.5 million at a 100% loan-to-value ratio (LVR)
Legal professionals
- Legal professionals that are members of professional organisations qualify for an LMI waiver. This includes judges, lawyers, barristers, conveyancers and solicitors.
- People in these roles must earn $150,000 or more per annum to qualify to borrow a maximum loan amount of $2 million at a maximum LVR of 90% with no LMI.
Accountants and finance professionals
- It is required that finance professionals can demonstrate membership to professional bodies or industry organisations, such as actuaries, auditors and Chief Financial Officers.
- Like legal professionals, finance professionals must earn over $150,000 annually to waive LMI on a 90% LVR loan, capped at $2 million.
Entertainment professionals
- Professionals in the entertainment industry who are currently represented by an accredited manager, agent or accountant, including those working in fashion, theatre, film, television, and music.
- Australian entertainment professionals that are earning at least $150,000 every year can have LMI waived, as long as the maximum loan amount is not over $2 million and 90% of the property price.
Professional athletes
- To qualify for an LMI waiver as a professional athlete, an accredited agent or manager must represent you.
- You also must earn at least $150,000 per year. Professional athletes also can borrow a maximum loan size of $2 million, which cannot exceed 90% of the purchase price.
Mining Specialists
- This category includes people working in the resource, mining and energy sectors, including geologists, surveyors, and geophysicists.
- Like the other professions, mining professionals must earn over $150,000 annually to qualify for a 90% LVR no-LMI home loan, capped at $2 million.
Remember that to be eligible for a Lenders Mortgage Insurance waiver, you must meet the minimum income requirement (including rental income) and also be a suitable loan applicant with a solid financial history and a good credit score.
If you’re unsure if you qualify for an LMI waiver, it’s a good idea to enquire with a mortgage broker.
Is there an LMI waiver when refinancing a home loan?
Borrowers looking to refinance their home loan can only get an LMI waiver if the remaining loan equals 80% of the property’s value or less. This means that borrowers who have built up enough equity in their home loan (by making regular repayments) could see waived LMI.
So what about low-equity refinancing? If a borrower has already paid LMI on their original home loan and decides to refinance with an equity that is less than 20% of the total property value, then they will have to pay an LMI premium again with the new provider.
Can a family guarantor help with waived LMI?
LMI waivers aren’t only for borrowers who are high-income medical professionals or have a government guarantor for their home loan. Borrowers who have a homeowner family member (usually a parent) can have them be the guarantor of their new home loan.
In a similar way to how first home buyers can pay no LMI fees if the government acts as their loans guarantor, the family guarantor also can help the borrower pay no LMI premium. However, there are risks for the family guarantor as they could be liable if the borrower can’t repay them.
