Welcome To DWT Listing Theme
For many aspiring homebuyers in Perth, Lenders’ Mortgage Insurance (LMI) is one of the most significant and frustrating costs associated with purchasing a property. If you have a deposit of less than 20%, you will likely be told that you need to pay this expensive, one-off insurance premium. This can add thousands, or even tens of thousands, of dollars to your home loan, yet it offers no direct protection to you, the borrower. It often feels like an unavoidable penalty for not having a large deposit saved.
But what if it wasn’t unavoidable? The good news is that for many Perth buyers, paying LMI is not a foregone conclusion. There are several powerful and accessible strategies, government schemes, and specific loan products designed to help you bypass this cost entirely. This guide will provide a definitive overview of every major pathway available to help you secure a “No LMI” home loan in Perth.
To understand how to avoid LMI, it’s important to first understand what it is and why lenders charge it.
Lenders’ Mortgage Insurance is a one-off insurance premium that protects the bank or lender in the event that a borrower defaults on their home loan. If the sale of the property does not cover the outstanding mortgage balance, the LMI policy pays the lender the difference. The crucial point to remember is that you, the borrower, pay the premium for this policy, but the lender is the sole beneficiary. It is purely a risk-mitigation tool for them.
The standard way to avoid paying LMI is to provide a deposit of 20% of the property’s value, which means you are only borrowing 80% (this is known as an 80% Loan-to-Value Ratio, or LVR). When you have this level of equity in the property from day one, lenders view the loan as being much lower risk and therefore do not require the insurance. However, for most people, saving a 20% deposit in the Perth market is the biggest hurdle to homeownership.
One of the most effective ways for first home buyers to avoid LMI is through the federal government’s Home Guarantee Scheme.
The HGS is a suite of programs where the government effectively acts as a guarantor for a portion of your home loan. Under the popular First Home Guarantee (FHBG), for example, the government guarantees up to 15% of the property’s value. This gives the lender the same level of security as if you had a 20% deposit, allowing you to purchase a home with as little as a 5% deposit while completely avoiding the cost of LMI.
These schemes are targeted and have specific eligibility criteria. Generally, you must be an Australian citizen, have a taxable income below a certain threshold, and be purchasing a property as an owner-occupier. Crucially, there are also property price caps that are specific to each capital city and region. A mortgage broker can help you check the current caps for Perth and confirm your eligibility.
Perth residents have a unique and powerful advantage available to them through Keystart, the Western Australian Government’s own lending initiative.
Keystart was specifically created to help Western Australians get into the property market. Its two most significant features are its extremely low deposit requirements—as low as 2% in some cases—and the fact that it does not charge LMI. This makes it one of the most accessible pathways to homeownership in the state, removing the LMI barrier that stops so many buyers.
As a government-backed lender, Keystart has its own specific criteria. These include income limits and property purchase price caps that are set for the Perth metropolitan area and other regions in WA. It is often seen as a “foot in the door” lender, designed to help people buy their first home, with the idea that they may refinance to a mainstream lender later on once they have built up more equity.
For those with supportive family members, a guarantor loan is another highly effective way to avoid LMI.
A guarantor loan allows a close family member, typically a parent, to use a portion of the equity in their own home as additional security for your loan. This guarantee “tops up” your deposit in the lender’s eyes. For example, if you have a 5% deposit, your guarantor can provide a security guarantee for the remaining 15%. This gives the lender the 20% security they require and completely eliminates the need for you to pay LMI.
This is a significant commitment for the guarantor, as their property is being used as security. It is essential that both the borrower and the guarantor seek independent legal and financial advice before entering into this type of arrangement to ensure everyone fully understands their responsibilities and risks.
A lesser-known but highly valuable option is the waived LMI offered by some lenders to borrowers in specific, low-risk professions.
Some banks and lenders view certain qualified professionals as being extremely reliable, high-income borrowers. These often include medical professionals (doctors, dentists, veterinarians), legal professionals (lawyers, solicitors), and some engineering and accounting specialists.
To attract these desirable clients, some lenders will completely waive the LMI premium as a special professional perk. This often allows eligible professionals to borrow up to 90% of the property value (requiring only a 10% deposit) without having to pay any LMI whatsoever. This can result in tens of thousands of dollars in savings.
While Lenders’ Mortgage Insurance is a common expense in the home buying process, it should not be seen as an unavoidable cost. For many prospective homebuyers in Perth, there are multiple clear and accessible pathways to securing a home loan without having to pay this significant fee.
The key to success is to be well-informed. By thoroughly investigating the powerful government schemes like the HGS and Keystart, exploring family support options like guarantor loans, and checking if your profession qualifies you for special benefits, you can save a huge amount of money. Before you simply accept LMI as a standard part of your loan, partner with a knowledgeable Perth mortgage broker. They can quickly assess your circumstances and guide you toward the smartest and most effective No LMI solution for you.
