Not everyone can afford a 20 per cent deposit on a property. With prices sky high in capital cities like Sydney and Melbourne, asking for a 20 per cent deposit may mean asking Australians to save hundreds of thousands of dollars. 

This is where higher LVR home loans may come in handy, such as 90% LVR home loans. However, saving a smaller deposit does come with its own risks and additional costs. 

Here is everything you need to know about 90% LVR home loans.

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3.02%

Variable

3.05%

Yard

$1.4k

Redraw facility
Offset Account
Borrow up to 90%
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2.18

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2.34%

Fixed - 2 years

2.70%

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$1.3k

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Borrow up to 94.9999%
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2.17

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2.79%

Fixed - 5 years

3.87%

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$1.4k

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Borrow up to 95%
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Interest Only
Owner Occupied

2.82

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Learn more about home loans

What is a 90% LVR home loan

Before plunging into the numbers and how much of a deposit you need to buy a piece of real estate, let’s start with the LVR part.

LVR translates to ‘loan-to-value ratio’, which means how much money you can borrow versus the value of the property being purchased. For example, if a property was worth $400,000, you had a 20% deposit of $80,000 and you were borrowing $320,000 from a lender, then your loan-to-value ratio would be 80 per cent. This is because you were borrowing 80 per cent of that property's value. 

This is a very important equation and will determine how much money you can borrow to buy a property, and whether or not you can purchase the property you want.

When you’re researching home loan products, most mortgages will list the LVR. This does vary from lender to lender, and loan to loan. The percentage of LVR will determine how much you need for a deposit.

In the case of a 90 per cent LVR home loan, the loan amount (what you borrow) is calculated as 90 per cent of the property’s value.

If you’re allowed to borrow up to 90 per cent of the sale price, you would need a deposit of at least 10 per cent of the property’s value to secure this type of loan.

Calculating the LVR of a home loan

An easy way of calculating LVR is to divide the purchase price of the property by 100 and then multiply that amount by the LVR.

Let’s say the property costs $1,000,000. If you divide by 100, the LVR would be $10,000; if you then multiplied by 90, you’d get $900,000.

Based on this calculation, you could deduce that you would need the difference between these two amounts ($100,000) as a deposit to qualify for the home loan. Of course, this figure doesn’t factor in associated purchase costs such as stamp duty and conveyancing.

This is only a guide, and not a hard and fast rule. Some lenders calculate the LVR based on a property’s valuation, not the purchase price.

The purchase (or listed) price of a property may differ from the property’s actual value. Where there’s a difference between these two figures, a lender or mortgage insurer may use the lower value.

It’s worth noting that not all lenders require a valuation of the property.

Am I eligible for a 90% LVR home loan?

You’ve found a property to buy, and have a 10 per cent deposit plus additional funds for upfront purchase costs such as legal fees, stamp duty and pest and building inspections – but what else may determine if you're eligible for a 90% LVR home loan? 

Each lender will have its own lending criteria for a home loan, but there are ways to do your due diligence and ensure your application is as supported as possible.

  • Borrowing power calculator. A lender will calculate your ability to service a loan based on the property price, your income, expenses and dependents. But a borrowing power calculator may also give you a good idea of this before you apply. If your results are lower than you'd like, you may want to consider adjusting your budget, eliminating some expenses or squirrelling away more savings. 
  • Genuine savings. Genuine savings are (generally) determined by the amount of cash you have in your bank account, and how long you’ve been saving. For example, you might have saved the 10 per cent deposit over a period of years, which would be considered genuine savings. Or it might have been deposited recently by a family member, which might not be considered genuine savings. It will come down to the lender’s discretion as to what it considers to be genuine savings.
  • Credit score. Your lender may not grant you a home loan just because you have the deposit; a bad credit rating could impact whether or not your application is successful. If you don’t know your credit score, there are companies that can provide a copy of your credit history either for free (which takes longer), or for a relatively small fee (which is quicker).

What are the benefits of a 90% LVR home loan?

The obvious benefit of a 90 per cent LVR home loan is the amount you can potentially borrow. It’s easier to save a 10 per cent deposit than a 20 per cent deposit.

Another benefit is that it might allow you to qualify for a mortgage – something that might not be possible if you had to take out a home loan with an LVR of 80 per cent.

And if you’re already a homeowner, being able to secure a 90 per cent LVR home loan could mean you get to purchase another (investment) property and start to grow a real estate portfolio.

How big of a deposit should I save?

Lenders and financial experts typically recommend saving a deposit of 20 per cent, or having an 80% LVR. 

While a smaller deposit will make the saving and waiting process a little easier for would-be borrowers, it does come with its own risks, including:

  • Lenders mortgage insurance. One cost you will run into by having a deposit under 20 per cent/an LVR under 80 is lenders mortgage insurance (LMI). LMI indemnifies the lender against any financial losses in the event you default on your home loan repayments. It’s a one-off payment that is either paid by you as part of your deposit (thus increasing the amount you need for a deposit) or is added to the amount you borrow. LMI can be tens of thousands of dollars, depending on the property price, so check out an LMI calculator before you apply. 
  • Borrowing more. Having a larger deposit does mean you're borrowing less and therefore taking on less debt from a lender. A mortgage is generally one of the biggest ongoing bills you'll have in your lifetime, and the smaller the amount borrowed, the less interest you'll also have to pay.
  • Higher interest rates. Generally speaking, lenders look favourably on borrowers with larger deposits as this helps to make them appear less 'risky' on their home loan application. Due to this reduced risk on the lender, a borrower with a larger deposit will typically be offered a more competitive interest rate. 
  • Less special offers. Not only may a lender offer someone with a lower LVR a more competitive interest rate, they may be offered greater features and extras on their mortgage. Having a 90% LVR or higher may mean you're unable to access handy features like an offset account or the ability to make additional repayments. You may also miss out on benefits like cash back offers or bundled home loan packages with credit cards.

What type of property can I purchase with a 90% LVR home loan?

Whether you're looking for an investment property or a home to live in as a first home buyer, home loan lenders will generally have a loan option that suits your property type. 

Most 90 per cent LVR home loans are available for owner-occupiers, investment purchases, debt consolidation and refinancing. You may also be able to find 90% LVR variable rate loans or fixed rate loans. 

When doing your research, the loan should outline what it can be used for.

Now that you know how to calculate a 90 per cent LVR home loan, and what you can buy, it’s worth knowing whether you qualify.

Can a broker help me with a 90% LVR home loan?

If you're still unsure of whether you may qualify for a 90% LVR home loan, it may be worth consulting with a mortgage broker. 

Mortgage brokers may be able to help save you time and effort in choosing a home loan. They are considered experts in their field and have a greater experience in translating everyday Australians' unique financial situation into eligible home loan applications. 

If your credit score isn't perfect, or if your deposit is under 20 per cent, the number of loans you may qualify for could be lessened. A mortgage broker can use their specialist knowledge to potentially guide you towards home loan offers that you may be eligible for.

Frequently asked questions

What is a loan-to-value ratio (LVR)?

A loan-to-value ratio (otherwise known as a Loan to Valuation Ratio or LVR), is a calculation lenders make to work out the value of your loan versus the value of your property, expressed as a percentage.   Lenders use this calculation to help assess your suitability for a home loan, and whether you need to pay lender’s mortgage insurance (LMI). As a general rule, most banks will require you to pay LMI if your loan-to-value ratio is 80 per cent or more.   LVR is worked out by dividing the loan amount by the value of the property. If you are looking for a quick ball-park estimate of LVR, the size of your deposit is a good indicator as it is directly proportionate to your LVR. For instance, a loan with an LVR of 80 per cent requires a deposit of 20 per cent, while a 90 per cent LVR requires 10 per cent down payment. 

LOAN AMOUNT / PROPERTY VALUE = LVR%

While this all sounds simple enough, it is worth doing a more accurate calculation of LVR before you commit to buying a place as there are some traps to be aware of. Firstly, the ‘loan amount’ is the price you paid for the property plus additional costs such as stamp duty and legal fees, minus your deposit amount. Secondly, the ‘property value’ is determined by your lender’s valuation of the property, not the price you paid for it, and sometimes these can differ so where possible, try and get your bank to evaluate the property before you put in an offer.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

Does Australia have no-deposit home loans?

Australia no longer has no-deposit home loans – or 100 per cent home loans as they’re also known – because they’re regarded as too risky.

However, some lenders allow some borrowers to take out mortgages with a 5 per cent deposit.

Another option is to source a deposit from elsewhere – either by using a parental guarantee or by drawing out equity from another property.

How can I avoid mortgage insurance?

Lenders mortgage insurance (LMI) can be avoided by having a substantial deposit saved up before you apply for a loan, usually around 20 per cent or more (or a LVR of 80 per cent or less). This amount needs to be considered genuine savings by your lender so it has to have been in your account for three months rather than a lump sum that has just been deposited.

Some lenders may even require a six months saving history so the best way to ensure you don’t end up paying LMI is to plan ahead for your home loan and save regularly.

Tip: You can use RateCity mortgage repayment calculator to calculate your LMI based on your borrowing profile

How much deposit will I need to buy a house?

A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.

While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.

How much can I borrow with a guaranteed home loan?

Some lenders will allow you to borrow 100 per cent of the value of the property with a guaranteed home loan. For that to happen, the lender would have to feel confident in your ability to pay off the mortgage and in the security provided by your guarantor.

How do I know if I have to pay LMI?

Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

What is a credit limit?

The maximum amount that can be borrowed from a lender, as per the home loan contract.

What is Lender's Mortgage Insurance (LMI)

Lender’s Mortgage Insurance (LMI) is an insurance policy, which protects your bank if you default on the loan (i.e. stop paying your loan). While the bank takes out the policy, you pay the premium. Generally you can ‘capitalise’ the premium – meaning that instead of paying it upfront in one hit, you roll it into the total amount you owe, and it becomes part of your regular mortgage repayments.

This additional cost is typically required when you have less than 20 per cent savings, or a loan with an LVR of 80 per cent or higher, and it can run into thousands of dollars. The policy is not transferrable, so if you sell and buy a new house with less than 20 per cent equity, then you’ll be required to foot the bill again, even if you borrow with the same lender.

Some lenders, such as the Commonwealth Bank, charge customers with a small deposit a Low Deposit Premium or LDP instead of LMI. The cost of the premium is included in your loan so you pay it off over time.

How can I get a home loan with bad credit?

If you want to get a home loan with bad credit, you need to convince a lender that your problems are behind you and that you will, indeed, be able to repay a mortgage.

One step you might want to take is to visit a mortgage broker who specialises in bad credit home loans (also known as ‘non-conforming home loans’ or ‘sub-prime home loans’). An experienced broker will know which lenders to approach, and how to plead your case with each of them.

Two points to bear in mind are:

  • Many home loan lenders don’t provide bad credit mortgages
  • Each lender has its own policies, and therefore favours different things

If you’d prefer to directly approach the lender yourself, you’re more likely to find success with smaller non-bank lenders that specialise in bad credit home loans (as opposed to bigger banks that prefer ‘vanilla’ mortgages). That’s because these smaller lenders are more likely to treat you as a unique individual rather than judge you according to a one-size-fits-all policy.

Lenders try to minimise their risk, so if you want to get a home loan with bad credit, you need to do everything you can to convince lenders that you’re safer than your credit history might suggest. If possible, provide paperwork that shows:

  • You have a secure job
  • You have a steady income
  • You’ve been reducing your debts
  • You’ve been increasing your savings

How much money can I borrow for a home loan?

Tip: You can use RateCity how much can I borrow calculator to get a quick answer.

How much money you can borrow for a home loan will depend on a number of factors including your employment status, your income (and your partner’s income if you are taking out a joint loan), the size of your deposit, your living expenses and any other debt you might hold, including credit cards. 

A good place to start is to work out how much you can afford to make in monthly repayments, factoring in a buffer of at least 2 – 3 per cent to allow for interest rate rises along the way. You’ll also need to factor in additional costs that come with purchasing a property such as stamp duty, legal fees, building inspections, strata or council fees.

If you are planning on renting the property, you can factor in the expected rental income to help offset the mortgage, but again it’s prudent to add a significant buffer to allow for rental management fees, maintenance costs and short periods of no rental income when tenants move out. It’s also wise to factor in changes in personal circumstances – the typical home loan lasts for around 30 years and a lot can happen between now and then.

What is equity? How can I use equity in my home loan?

Equity refers to the difference between what your property is worth and how much you owe on it. Essentially, it is the amount you have repaid on your home loan to date, although if your property has gone up in value it can sometimes be a lot more.

You can use the equity in your home loan to finance renovations on your existing property or as a deposit on an investment property. It can also be accessed for other investment opportunities or smaller purchases, such as a car or holiday, using a redraw facility.

Once you are over 65 you can even use the equity in your home loan as a source of income by taking out a reverse mortgage. This will let you access the equity in your loan in the form of regular payments which will be paid back to the bank following your death by selling your property. But like all financial products, it’s best to seek professional advice before you sign on the dotted line.

Will I be paying two mortgages at once when I refinance?

No, given the way the loan and title transfer works, you will not have to pay two mortgages at the one time. You will make your last monthly repayment on loan number one and then the following month you will start paying off loan number two.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

Can I get a home loan if I am on an employment contract?

Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

If you’re a contractor, freelancer, or are otherwise self-employed, it may still be possible to apply for a low-doc home loan, as these mortgages require less specific proof of income.

Is there a limit to how many times I can refinance?

There is no set limit to how many times you are allowed to refinance. Some surveyed RateCity users have refinanced up to three times.

However, if you refinance several times in short succession, it could affect your credit score. Lenders assess your credit score when you apply for new loans, so if you end up with bad credit, you may not be able to refinance if and when you really need to.

Before refinancing multiple times, consider getting a copy of your credit report and ensure your credit history is in good shape for future refinances.