Do you qualify for a lenders mortgage insurance waiver for professionals?

Lenders mortgage insurance (LMI) is a policy designed to help protect lenders against the risk of not being able to recover a loan balance if a borrower fails to repay the loan, and the property is sold for less than the outstanding balance. LMI could help you buy a home when you have less than a 20 per cent deposit, but it can also increase the cost of your loan by thousands of dollars. Having a guarantor or using a government scheme, like the First Home Guarantee, can help some people avoid paying LMI when buying a property, but they don’t work for everyone.

But if you’re a professional working in one of several industries, you might qualify for an LMI waiver, which offers significant benefits over other methods of avoiding LMI fees. Let’s take a closer look at LMI waivers and which professions may qualify for them.

An LMI waiver allows an eligible borrower to take out a home loan worth more than 80 per cent of the value of a property without having to pay the usual LMI premium. An LMI waiver could be worth thousands of dollars, depending on the value of the loan and the purchase price and valuation of the property being purchased.

An LMI waiver is different to alternative means of avoiding LMI fees for several reasons:

• You may not have to be a first home buyer to secure one.
• LMI waivers for specific professionals aren’t designed to help low-income home buyers, so there’s not usually the same income threshold in the eligibility criteria. However, some lenders may require a minimum income as a part of their LMI waiver policy.
• Family members don’t have to take on a significant financial risk to guarantee your loan.

Most lenders will only lend up to 80 per cent of the value of a property, unless they have some kind of guarantee that they’ll be able to recover any unpaid loan balance in the event a borrower defaults. LMI is a common way for lenders to access just such a guarantee. There are also several circumstances when a lender may not require LMI, which may include:

• The loan will have a guarantor. If a prospective borrower can’t pay a 20 per cent home deposit but has a family member or close friend who’s willing to guarantee loan repayments will be made, usually by providing part of their home equity as security, lenders may not require the LMI payment.

• The borrower is accessing a government home buyer scheme. From time to time, the government may wish to help certain groups of people, such as single parents and first home buyers, to purchase a home. The governments First Home Buyer Guarantee and Family Home Guarantee provides security for the difference between 20 per cent of the value of the property and the deposit the homebuyer has saved, subject to eligibility requirements. Lenders participating in such schemes will not require LMI premium payments for eligible home buyers.

• The borrower is eligible for an LMI waiver. People working in certain professions, who meet a lenders eligibility requirements, such as an income over a certain amount and membership to a professional association, may be able to access an LMI waiver.

There are several reasons offering loans without an LMI premium may be attractive to lenders:

• They wish to support certain groups of people.
• Participating in a government loan scheme helps reduce the risk of lending to certain loan customers, such as single parents.
• While a 20 per cent deposit is important to reduce a lenders risk, lenders may be comfortable with the income and job security of certain professionals, allowing them to attract more high-value customers. For example, some lenders recognise that for certain professions, saving for a deposit while investing in your education can be challenging.

This will ultimately depending on your profession, and the eligibility criteria of each lender that decides to issue an LMI waiver. There will also be additional eligibility requirements, such as minimum income, credit score, membership with an eligible professional institute, and employment length, that are likely to need to be met.

When deciding on an LMI waiver, lenders will generally favour professions that offer core services that will always be in demand. Some examples of careers that some Australian lenders may issue LMI waivers for include:

• Accountants
• Dentists
• Doctors
• Entertainment professionals (high-income)
• Judges and magistrates
• Lawyers, solicitors, barristers, and other legal professionals
• Midwives
• Nurses
• Optometrists
• Other health and medical professionals like physiotherapists, occupational therapists, audiologists, speech pathologists, and chiropractors
• Pharmacists
• Professional athletes (with an agent or manager)
• Property investors (when buying an investment property from Defence Housing Australia)
• Psychologists
• Radiologists and sonographers
• Vets.

A career in one of these industries does not guarantee an automatic LMI waiver. But if you are qualified and work in one of these professions, you might be able to save thousands on the upfront costs of your home loan or investment loan by applying for a waiver. Speaking to a loan advisor at your preferred bank or lending institution, or to a mortgage broker, could help to find out whether you might be eligible for a waiver on any normally mandatory lenders mortgage insurance costs.

It’s also worth reinforcing that there may be other criteria that govern whether you might have to a pay lender insurance premium. For instance, LMI waivers are often only available on loans amounting to a specific maximum loan value (which varies from lender to lender). And lenders will waive LMI fees only if prospective borrowers meet other lending criteria, such as minimum credit ratings.

As a final note, LMI premiums can constitute a large upfront loan cost in the thousands, or even tens of thousands of dollars. As such, an LMI waiver can save a borrower a substantial sum of money. But, because not all lenders offer waivers for the same professions, it’s possible for a loan with an LMI waiver from one lender to be more expensive over the life of the loan than a loan with an LMI fee from another lender, especially if the interest rate differs between the two loans on offer. So, it’s still important to compare home loans and do your research when you’re looking to find one that’s suitable for your unique circumstances and goals.