The process of buying a home, can be complicated and lengthy, particularly if it’s your first time. But arguably the hardest part of it all is actually saving up the initial deposit – a lump sum which is generally recommended to be at least 20% of a property’s value.
At today’s house prices, a 20% deposit can amount to a lot of money, often a six-figure sum. According to data from CoreLogic, the median value for a home is:
- $771,264 across the eight capital cities
- $698,170 across the country (including regional areas)
So at the national median dwelling price of $666,514, a 20% deposit would be $139,634. For many Australians, saving up a deposit of that size would seem nigh on impossible.
But the good news is you don’t necessarily have to save 20% for a deposit. While it’s not recommended, you may (in some cases) be able to secure a home loan without saving a single dollar for a deposit.
Can you get a no deposit home loan?
To burst that bubble almost immediately, you can’t really get a 100% deposit home loan from any of the traditional lenders. They might make case-by-case exceptions based on income or a person’s repayment history but as a general rule, 100% home loans don’t exist as an actual product. Chances are you’ll need to cough up a minimum of 5% – we’ll cover this in greater detail shortly.
Do any lenders offer no deposit or 100% LVR?
There are some smaller or specialist lenders out there who offer their own versions of 100% home loans, but they’re few and far between, and usually have some pretty tight restrictions on who can qualify.
In addition to usually having a significantly higher interest rate (think over 6.5% p.a.), these loans may also require:
- A tertiary education
- Continuous employment of three years or more
- A minimum salary of $150,000 per year for singles or $180,000 for couples
- A clean credit history
Obviously, the key takeaway here is the $150,000 salary – someone earning this much probably isn’t struggling to earn enough for a deposit, and would probably do just fine applying for any other loan with a lower interest rate.
Can you get a no deposit home loan without a guarantor?
There have been cases of 100% home loans with no guarantor. However these are few and far between and have been cases of people who earn extremely high incomes.
No deposit, and no guarantor will almost always result in no home loan from lenders.
How else can I get a home without a deposit?
Here we’ll list a few of the ways you can potentially buy a house with no deposit.
Use a First Home Owners Grant
If you’re a first home buyer using the First Home Owners Grant (FHOG), then you can technically use this as a deposit, which would mean you’re paying 0%.
Each state and territory has different offers based on different criteria.
Use a Guarantor
Another method of securing a home loan without a deposit is by using a guarantor. A home loan with a guarantor is a type of mortgage where someone else (typically an immediate family member) has agreed to take responsibility for making repayments in the event that you can’t. Guarantors also often offer equity in one of their existing properties as security on the house.
Because of these requirements, and the large degree of risk a guarantor is exposing themselves to, guarantors are often limited to being the applicant’s parents or other immediate family members. But some allow extended family members such as aunts or uncles – it all comes down to who the lender accepts. Some lenders offer 105% home loans for those with guarantors, which is basically the entire cost of the loan plus additional costs like stamp duty and application fees.
Guarantor home loans can be useful for people who:
- Have low incomes
- Are struggling top reach their deposit goal
- Have bad credit histories
- Have a shaky employment history
Different lenders can have different terms and conditions around guarantors, so make sure you and your guarantor understand what these are before committing to anything.
Use equity as a deposit
If you are a savvy investor, you can use the equity in your home to pay a deposit on an investment property. Equity in a home is the value of the property minus how much you owe on the mortgage tied to it.
The best way to do this is to get your home valued and possibly refinance as well, once you know how much equity you can access, you can decide to take out a chunk to use as a deposit on another property.
Learn more about using equity to buy another property
Use a personal loan as the deposit
People may consider using a personal loan to pay the deposit, however many lenders do not use this option.
Using a personal loan means you have to keep up with repayments for both the personal loan and home loan, with the personal loan usually coming with high interest repayments.
Get your deposit as a gift
The bank of mum and dad has undoubtedly become a popular lender as house prices have increased. Each family will be different, but getting a loan or gift from family or friends can provide a deposit to get your foot on the property ladder.
An advantage is you may be able to repay a friend or family who gifts you the deposit, interest free, saving you thousands on interest repayments. Or even better, a lump sum gift for a deposit with no strings attached.
So what’s the minimum deposit needed for standard home loans?
In the vast majority of cases, you’ll need to stump up at least some kind of deposit in order to secure a home loan. Many lenders will accept a deposit of at least 5%, but they typically charge lender’s mortgage insurance (LMI) on home loans with deposits smaller than 20%, which can add around $10,000 to the cost of the loan.
If you’re a first home buyer, you may be able to buy a house with a 5% deposit AND avoid paying LMI by utilising the government’s First Home Loan Deposit Scheme, where the government provides the lender with a guarantee on up to 15% of the loan.
Many advertised loans will have an LVR (loan-to-value ratio) number in their name. This number represents the maximum proportion of a property’s value that the loan can be used for, which effectively reflects its minimum deposit requirement. So an 80% LVR loan will require a 20% deposit and a 90% LVR loan will require a 10% deposit, etc.
95% home loans explained
If you’re reasonable in your property expectations (i.e. you don’t want a mansion in the middle of the city), have a stable employment history and a decent credit score, you’d stand a good chance of being approved for a 95% home loan – if you can find a lender that offers one.
95% home loan lenders
Buying a home without a 20% deposit? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers with 95% LVR.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.90% p.a. | 5.93% p.a. | $2,373 | Principal & Interest | Variable | $0 | $77 | 95% | |||||||||||
6.59% p.a. | 6.62% p.a. | $2,552 | Principal & Interest | Variable | $0 | $300 | 95% | |||||||||||
6.54% p.a. | 7.61% p.a. | $2,605 | Principal & Interest | Variable | $0 | $300 | 97% | |||||||||||
7.09% p.a. | 7.11% p.a. | $2,685 | Principal & Interest | Variable | $0 | $195 | 94.99% | |||||||||||
6.84% p.a. | 6.88% p.a. | $2,618 | Principal & Interest | Variable | $0 | $0 | 95% | |||||||||||
8.80% p.a. | 8.94% p.a. | $3,161 | Principal & Interest | Variable | $8 | $800 | 95% |
95% home loans are not as common as higher deposit loans, but are still available from many reputable lenders, including each of the 10 biggest: Commonwealth Bank, Westpac, NAB, ANZ, ING, Suncorp Bank, Bendigo & Adelaide Bank, Macquarie Bank, Bank of Queensland and ME Bank.
95% home loans allow you to enter the property market quicker, but you might have to put up with:
- Higher than average interest rates
- Higher fees
- Stricter lending criteria
This is to compensate for your higher perceived risk as a borrower. PLUS, borrowing more of the property’s value means you’re paying much more in interest over the life of the loan. For example, let’s say you wanted to buy a $500,000 home, and find a home loan with no ongoing fees and an interest rate of 4%:
- Borrowing 80% of the property’s value leads to monthly repayments of $2,111
- Borrowing 95% leads to monthly repayments of $2,507
In interest costs alone, that’s an extra $43,763 you’re paying over 25 years!
The lower the deposit, the higher the LMI
LMI, or lenders mortgage insurance, is a fee tacked on by lenders when you borrow more than 80% of the property’s value. But don’t let the name confuse you, this insurance is to protect the lender, not you.
As you can see in the table below, the lower the deposit the higher the LMI. A 95% home loan can also add tens of thousands of dollars to your upfront home loan costs!
| Estimated Lenders Mortgage Insurance (LMI) Premiums for First Home Buyers | |||
|---|---|---|---|
| Estimated property value | 95% LVR | 90% LVR | 85% LVR |
| $200,000 | $5,073 | $2,718 | $1,479 |
| $400,000 | $12,768 | $6,912 | $3,842 |
| $600,000 | $25,707 | $13,176 | $6,630 |
| $800,000 | $34,276 | $17,568 | $8,840 |
| $1,000,000 | $42,845 | $22,050 | $11,135 |
Source: Genworth LMI premium estimator. Prices including GST but excluding stamp duty. Based on a loan term up to 30 years.
Is it possible to buy a house with no savings?
As you probably guessed, at savings.com.au we aren't going to recommend buying a house with no savings. But theoretically, you can borrow 90% or even 95% for a house without savings. However most lenders are going to want a guarantor on loans like these.
Why do you need to save up for a deposit anyway?
Basically, lenders are inherently taking a risk by lending you so much money. Although they can repossess the house after a period of failed repayments, they’re still putting hundreds of thousands of their own dollars on the line.
A large deposit can also serve as proof to the lender that you’re good with money and can demonstrate reliable savings habits.
A 20% deposit is considered the safe benchmark for lenders – any less and they’ll probably look at your application with an oversized magnifying glass. Lenders are more cautious with borrowers than they were in the past, with some taking ‘responsible lending’ to extremes, combing through people’s transaction history to look for any mildly suspicious purchase.
Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.04% p.a. | 6.06% p.a. | $2,408 | Principal & Interest | Variable | $0 | $530 | 70% | Featured Online ExclusiveUp To $4K Cashback |
| |||||||||
5.99% p.a. | 5.90% p.a. | $2,396 | Principal & Interest | Variable | $0 | $0 | 80% | Featured Apply In Minutes |
| |||||||||
6.14% p.a. | 6.16% p.a. | $2,434 | Principal & Interest | Variable | $0 | $250 | 60% | Featured Unlimited Redraws |
|
Savings.com.au’s two cents
If you want to secure a home loan without a deposit, then using a guarantor may be your best bet, as there aren’t really any other options available. If you’re lucky enough to have a family member that’s willing to go guarantor on a home loan for you, it’s definitely worth considering. But you should also consider the following:
- What happens when you can’t meet your repayments?
- How will it affect your relationship with the guarantor?
- How much more will you pay in interest by borrowing up to 100% of the property’s value?
Without a guarantor, the maximum you can typically borrow from the majority of lenders is 95% of the property’s value.
Keep in mind that while buying a house with little to no deposit might be necessary if time’s not on your side (e.g. house prices are rising fast or your dream home is finally on the market), it’s usually more beneficial to patiently wait until you’ve saved up a 20% deposit at least. Our article on saving for a home loan on a low-income has some practical tips on how you can do this without living on a diet of canned beans.
Photo by Austin Distel on Unsplash
Original article published by William Jolly - 2019
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