Can you borrow 100 per cent of a home loan?

A 100 per cent home loan allows you to borrow the total purchase price of the property without any deposit. These are also known as no-deposit home loans, and may be available under certain conditions. Generally, you don’t have to demonstrate your savings history and must only have the amount needed to cover the transaction expenses such as stamp duty and legal fees. 

How does a deposit affect your home loan application?

Today, borrowing a 100 per cent home loan is almost impossible. Lenders generally favour at least a five per cent minimum deposit for several reasons, such as:

• When you save for the deposit, lenders see you as financially responsible, thereby reducing the risk of default.
• The Australian Prudential Responsibility Authority (APRA) discourages lending large sums to risky borrowers who haven’t been able to save for a deposit.

When you pay a smaller deposit, your loan amount is higher, increasing the total interest paid over the loan term. Additionally, if the deposit is less than 20 per cent, you’ll also have to pay for Lenders Mortgage Insurance (LMI) as a significant extra expense.

If you pay 20 per cent or more as the deposit towards your home purchase, the lender may see you as a less risky borrower, who is less likely to default on your repayments. You may be able to negotiate a lower rate of interest, and potentially save substantially on interest costs over the duration of the loan.

You can accumulate the deposit in the following ways:

• Gift or inheritance from your parents
• The First Home Owner Grant can be used towards the deposit
• Sell an asset, such as shares or other investments
• Equity in another property

How can I borrow 100 per cent for a home loan?

One of the biggest hurdles when buying a home is saving for the deposit. However, you can still get a home loan with a lower deposit. Here are four ways to do this:

105 per cent guarantor loan

In this arrangement, your guarantors - most likely your parents - offer their property as loan security. You can borrow up to 105 per cent of the purchase price. To qualify for this loan, the guarantor should be working and must have adequate equity in an Australian property to cover the loan amount.

Using equity as the deposit

If you have a property, the equity can be used as the deposit for buying the new property. With adequate equity, you don’t need savings and can use it as a deposit by refinancing your existing mortgage.

First home loan deposit scheme

This is a national program, extended to 30 June, 2022, to enable first-time homebuyers to buy a property with a five per cent deposit without needing LMI. You’re eligible for this scheme if you earn up to $125,000 a year or $200,000 annually as a couple and intend to use the home as your primary residence.

Gifted deposit home loan

You can gather the deposit amount from your family through cash gifts or an inheritance with no obligation to repay this money. That said, when assembling your deposit, many lenders will still require at least five per cent of the property value be made up of genuine savings, that being earning from your job.

What are the costs related to no deposit loans?

Even if you are approved for a no-deposit loan, there are other costs you’ll incur upfront. These include:

• Establishment fees, which can be up to $700 and depend on the lender
• Transfer or stamp duty applicable at different rates in each state
• Building inspection charges between $400 and $1000
• Pest inspection costs varying between $200 and $500

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