Lenders mortgage insurance waiver | How can I get one?

LMI meaning – a recap

LMI stands for lenders mortgage insurance. It is an insurance for the lender that is paid for by the borrower when they have less than 20% deposit. LMI covers the lender for any shortfall in case of a loan default by the borrower.

What is a lenders mortgage insurance waiver?

A lenders mortgage insurance (LMI) waiver is when a borrower with less than 20% deposit can avoid paying the LMI cost of a home loan because they meet special criteria. Each lender will vary in their approach to how borrowers might access a lenders mortgage insurance waiver.

Just as lenders might run promotions aimed at attracting new borrowers with low interest rates, they can also run promotions centred around LMI waivers.

As a guide, if you were to purchase a home for $750,000 and borrow 90%, waived LMI could save you over $16,000. In the case of a 95% lender an LMI waiver could see you save in the vicinity of $30,000—not insignificant right?

My article on lenders mortgage insurance explains the ins and outs of LMI further, including other ways to avoid LMI.

How do LMI waivers work?

To have lenders mortgage insurance waived, lenders will apply a particular set of assessment standards for the LMI waiver—in addition to a typical home loan application.

How an LMI waiver works is that instead of the borrow paying the premium, a couple of things can happen because lenders have internal processes for dealing with LMI waivers.

Some require $1 payment of LMI, others require lending to be at a loan to value ratio of 89.99% instead of an 90% LVR home loan. Either way, the savings can be very significant.

So, the explanation here is by way of principle, as opposed to exact figures given the differences between lenders.

Borrowers usually finding themselves in a position to buy sooner as these upfront costs are no longer the obstacle they were saving to avoid.

Types of lenders mortgage insurance waivers?

LMI waivers can be promotional in nature and are sometimes offered by lenders as part of a campaign. Other LMI waivers exist as a more permanent part of a lender’s policy, like the LMI waiver for professionals.

Like any business, lenders have different types of customers they want to attract. Here is an overview of the different types of LMI waivers available and who might be eligible for each.

LMI waiver for professionals

LMI waiver for professionals present a significant cost saving opportunity as well as opening up an earlier buying window for eligible professionals.

There are particular professions that lenders target with LMI waiver policies crafted just for them. Lenders want to attract borrows they consider likely to be good home loan customers.

Individuals within these professions often have high education standards and income levels to support high value lending. They are usually members of associations with standards around conduct and education—so lenders feel these borrowers are literally worth the risk.

If your occupation falls within these fields, it could be worth exploring further your eligibility to a lenders mortgage insurance waiver.

• Medical professionals – doctors, dentists, pharmacists, optometrists, veterinarians
• Healthcare professionals – nurses, midwives, physiotherapists, chiropractor, psychologists, osteopath, occupational therapist, speech pathologist, podiatrist, audiologist, radiographer, sonographer
• Legal profession – lawyers, barristers
• Accounting professionals

There are many further levels of assessment to prove eligibility for a professional to have LMI waived but working in an occupation within these fields is a start.

LMI waiver via lender promotion

Lenders mortgage insurance waivers can crop up as a part of a lender promotion from time to time. These are often open more borrowers than the LMI waiver for professionals.

An LMI waiver promotion might be for purchases, refinances, or both.

There will usually be set criteria outlined as part of the LMI waiver promotion covering (but not limited to) the following areas:

• Employment history and type
• Strength of income vs expenses
• Property type

The type of borrower who might be able to access a LMI waiver promotion could be:

• First time buyers
• Previous homeowners
• Existing homeowners looking to refinance

LMI waiver via lender product niche

LMI waivers can form a semi- permanent (because is anything permanent?) product policy designed to attract a specific borrower profile. These are not usually occupation-specific LMI waivers.

Lenders are usually trying to attract borrowers with the following characteristics:

• Demonstrate comfortable affordability
• Usually require 15% equity

Given the bespoke offering that these LMI waivers are, a broker can be very helpful in investigating whether there is a niche product suited to your circumstances.

LMI waiver or guarantor home loan?

LMI waivers and guarantor home loans can both result in the borrower not paying lenders mortgage insurance. However, they are distinctly different loan proposals for a lender and a borrower to consider.

An LMI waiver is a fee saving benefit that relates to a home loan advanced to you—the borrower. There is no other party involved. The lender seeks assurances around the strength of your application by completing a credit assessment. Provided you fit the lenders criteria, you might be able to access a lenders mortgage insurance waiver.

Avoiding LMI with a guarantor home loan requires the borrower to provide the lender with extra security to make up for any deposit shortfall. In contrast to an LMI waiver, a guarantor home loan involves another person or organisation to add strength to a loan proposal, usually by adding an extra property (security) in the absence of extra savings.

Most guarantor home loans rely on a family member offering a guarantee to cover any deposit shortfall less than 20%. This is a way borrowers can avoid paying LMI.

More recently the Australian government has introduced a limited scheme whereby they offer to guarantee home loans up to a 98% LVR depending on the scenario—and borrowers avoid LMI. These typically target the following types of borrowers:

• Single-parent families
• First time buyers
• Regional home buyers

Assessment for a lenders mortgage insurance waiver

There can be extra assessment hurdles for borrowers to pass to before they access a lenders mortgage insurance waiver—in addition to the usual home loan assessment.

Income thresholds

Lenders vary in this area of assessment of LMI waivers. Some lenders require minimum income thresholds to access lenders mortgage insurance waivers whereas others do not.

There are also instances where specific income thresholds are not a requirement, but lenders might nominate a maximum debt-to-income (DTI) ratio they are willing to consider. This way, they are not limiting a borrower’s eligibility by income test only, it is more an application of common sense around overall debt exposure for a borrower.

An example of this could be for an individual with an annual income of $150,000 per year, a loan of $750,000 would represent a debt-to-income ratio of five. This does not mean this loan is approved or declined, it is just one measure a lender might use when they assess of a home loan application for an LMI waiver.

Maximum loan to value ratio (LVR)

Most lenders who offer mortgage insurance waivers will consider waiving LMI for 85% LVR through to 95% LVR.

Maximum loan amount

Lenders might cap the maximum amount of lending to an individual for a lenders mortgage insurance waiver. This policy will still allow for significant levels of borrowing. It is more a cap to prevent overexposure of one lender to a particular individual.

Property type

Although lenders might offer a lenders mortgage insurance waiver for a 90% LVR home loan, the borrower might still be limited in their borrowing amount because of the type of property they are looking to purchase. For example, some lenders prefer an established house as opposed to a land purchase only.

Credit score

A credit score is an indicator of a borrower’s ability to take on new debt with good conduct. An individual might seem eligible for an LMI waiver, but they still need to demonstrate good repayment history to maximise the chance of the home loan with an LMI waiver being approved.

FAQs?

Can lenders mortgage insurance be waived?

Yes. Lenders mortgage insurance can be waived for borrowers in Australia who can meet the lender’s criteria. Here are some solutions:

• LMI waiver for professionals
  There also many professions for whom lenders will consider waiving LMI—sometimes up to 95%LVR.
• LMI waiver for first homeowners
  Some mainstream lenders can waive LMI at 85% LVR for first time buyers.
• LMI waiver for non–first homeowner
  Lenders can have promotions or specific lending policies that can waive LMI, even when it is not your first home.

Can I get a LMI waiver for a refinance?

Yes.

There are lenders that offer waived LMI for a refinance home loan provided you meet their eligibility.

Borrowers can refinance with as little as 10% equity. This might enable a refinance to a home loan with a lower interest rate, different features, or even access to extra cash for a renovation.

Who is eligible for a LMI waiver?

Acceptance of any LMI waiver will depend on whether the loan product is right for you and whether you meet the eligibility criteria. A starting point can be if your occupation falls into the following fields:

• Medical Professionals
• Allied healthcare
• Legal professionals
• Accounting professionals

Does everyone have to pay lenders mortgage insurance?

No.

To avoid paying LMI you will normally require:

• A 20% deposit made up of savings, property equity, or a combination of both.
• A guarantor home loan using the support of a family member
• An Australian government guarantee scheme
• A state government supported lender
• Proving eligibility for an LMI waiver offer – this could be a professional LMI waiver or a lender promotion that is not profession-specific

Can you use equity to avoid LMI?

Yes. You can use your own equity or someone else’s.

If you have equity in an existing property this could help avoid LMI in lieu of savings. In a purchase-scenario this normally requires a lender to accept both new and existing properties as security to support any loans provided LVR is 80% or less.

Here is an example of how to use equity to avoid LMI:

if you used someone else’s equity it would commonly be a guarantor home loan, usually restricted to a family member, who has property equity they are willing to offer to secure a loan for you without LMI.

What if I am not eligible for an LMI waiver?

If you do not have a 20% deposit then you might investigate other ways to avoid LMI like:

• Guarantor home loans
• Government backed schemes
• State government backed lenders

Final word

Getting a home loan with lenders mortgage insurance waived can result in a very significant saving in upfront costs.

Navigating the home loan landscape is the difficult. Tying in the prospect of an lenders mortgage insurance waiver can make the home loan search even more so.

A mortgage broker could not only help you find the loan that is right for you, but if you have LMI waived it could be a very rewarding experience.