LMI Waiver for Nurses: The Complete Guide to Buying With 10% Down

Everything You Need to Know Before Using the Nurse LMI Waiver

Hello! If you've landed here, you're probably looking to buy a property with less than a 20% deposit. And most importantly, you're a nurse.

That's good news. Some lenders waive LMI for nurses and midwives, and on a $700,000 home that can save you around $17,000. But the waiver comes with restrictions, and it isn't always your best option.

This guide covers what LMI is, who qualifies for the waiver, how lenders look at your shift and overtime income, and the mistakes I see nurses make most often.

What LMI actually is

LMI stands for Lenders Mortgage Insurance. If you borrow more than 80% of the property's value, the lender usually charges it. It protects the lender if you can't repay, not you. You pay the premium, and the bank gets the cover. The industry had to call it something, I suppose.

On a $700,000 purchase with a 10% deposit ($70,000), the LMI premium is around $17,000. The exact figure depends on the lender and insurer.

Most people don't pay that upfront. They add it to the loan, and that's where it gets expensive. At a 6% interest rate over 30 years, an extra $17,000 on your loan adds about $102 to your monthly repayment. By the end of the loan you've paid roughly $36,700 for it, more than double the original premium.

It usually doesn't stop there. Loans where you pay LMI normally come with a higher interest rate as well, so you pay once for the insurance and again every month in extra interest.

What the waiver does

With a waiver, the lender drops the LMI even though you're borrowing more than 80%. For nurses this usually applies up to 90% LVR. LVR (loan-to-value ratio) is simply how much you're borrowing compared to what the property is worth. At 90% LVR, you need a 10% deposit plus your buying costs.

The waiver usually comes with a better interest rate too, lower than you'd normally get on a loan where you pay LMI. So you save twice: no $17,000 premium upfront, and less interest every month after that.

To avoid LMI the normal way, you'd need a 20% deposit. On a $700,000 home, that's $140,000 instead of $70,000. Saving the extra $70,000 at $1,500 a month takes almost four years. Prices usually don't wait that long.

Who usually qualifies

Every lender's rules are a little different, and they change. These are the ones that come up most:

• Registration: current AHPRA registration as a nurse or midwife. Depending on the lender, enrolled nurses can qualify as well as registered nurses.
• Income: Westpac, one of the most nurse-friendly lenders, needs you earning at least $90,000 a year, and that can include your overtime and allowances, not just your base pay.
• Experience: one lender has no income minimum at all, but needs you to have 3+ years of experience as a nurse.
• Property price: one lender caps the purchase price at $1.5 million.

So there are restrictions here and there, and they need to be handled with care. If you don't tick every box with one lender, that doesn't mean you're out. It usually means you need a different lender.

How lenders look at nurse income

This is what most nurses are worried about when they come to me.

Penalty rates, shift allowances and overtime

The thing I hear most is: "I do heaps of night shifts and overtime, but the bank only counts my base pay." Nurses have all sorts of income on top of their base, and with some lenders that extra income barely counts. But many nurse-friendly lenders will take 100% of it. If you're employed by a hospital, that's the case in most situations, including your shift allowances, penalty rates and overtime.

On a nurse's income, the gap between "base only" and "base plus regular shift income" can be tens of thousands of dollars a year. That changes how much you can borrow by a lot. Picking the lender that counts your real income matters as much as the waiver itself.

Salary packaging

A lot of hospital nurses salary package, which lowers your taxable income on paper. Some lenders can treat your packaged amount as tax-free income, which boosts your borrowing power. If your payslip looks lower than what you actually take home, tell your broker up front.

Casual, part-time and agency

Casual and agency nurses often assume they're out. Not always. It depends on the lender and how long you've been working that way. Part-time is usually fine, and some lenders will look at your actual hours rather than your contracted ones.

Which option is right for you

The nurse waiver isn't always the best deal, and I'd rather tell you that up front. If you're a first home buyer, the Government's 5% Deposit Scheme usually beats it. You only need 5% down and there's still no LMI.

The scheme has limits, though. It's only for first home buyers, only for a home you'll live in, and there are property price caps that depend on where you buy. That's where the nurse waiver comes in. It usually suits you if you're:

• Not a first home buyer. You've owned before and you're buying your next home.
• A first home buyer going above the price cap. The scheme stops at the cap, but the waiver doesn't depend on being a first home buyer.
• Buying an investment property. The government scheme doesn't cover investments.

Here's the order I usually work through with nurses:

1. The 5% Deposit Scheme, if you qualify for it.
2. The nurse LMI waiver, if you don't.
3. A general LMI deal some lenders offer to anyone, when the nurse waiver doesn't fit.
4. Paying LMI.

Paying LMI isn't always the wrong call, either. Sometimes it's better to pay it and get into the market earlier. While property prices keep rising, waiting until you've saved a 10% deposit can cost you more than the LMI would have. And you need to save for stamp duty on top of your deposit, which makes the wait even longer.

The process, step by step

1. A quick chat. We look at your income, deposit and what you're trying to buy, and work out whether the waiver, the government scheme or something else makes sense.
2. Pre-approval. I lodge it with the lender that fits your situation best, so you know your number before you start inspecting.
3. Finding the place. Once you're pre-approved, you can make offers with confidence.
4. Formal approval and settlement. I manage it through to the day you get the keys.

Mistakes I see nurses make

• Going straight to their own bank. Your bank may not offer a waiver for nurses at all. "No" from one bank often just means you asked the wrong bank.
• Undercounting their own income. If a lender only looks at base pay, you might be told you can borrow far less than you really can.
• Mistiming their loan application. There are certain times of the year when you can improve your borrowing power without working your ass off.
• Saving for 20% when they didn't need to. Four years of saving to avoid a cost that one lender would have waived anyway.
• Assuming casual work rules them out before anyone has actually looked at their payslips.

How I help

Victor Kwong

Principal Mortgage Broker, Loan Market

Phone: 0451 821 319

Email: victor.kwong@loanmarket.com.au

This is general information only and doesn't take your personal circumstances into account. Lender policies, government schemes and stamp duty rules change, so check the details with me before acting on anything. Victor Kwong, Loan Market, ACL 390222.