A home loan is often the gateway that allows people to buy their first property. But, sometimes stumping up the deposit can be a challenge. However, having little to no savings doesn’t always mean that you can’t get a loan to buy your house. If you meet certain eligibility criteria, you may be able to apply for a no deposit home loan - or in other words, a mortgage with zero down payment.
Keep in mind that even if you opt for a no deposit home loan, you’ll still have to bear the costs of various fees or Lenders Mortgage Insurance (LMI). So, if you’re looking for a home loan with no down payment, it’s essential that you carry out proper research to understand the requirements and alternatives to make an informed decision.
Can you get no deposit loans in Australia?
In the past, it was possible to borrow 100 per cent or even 105 per cent of the value of your home with a good credit score. However, in a bid to reduce the risks to borrowers and lenders if property values were to fall, many lenders have now stopped offering these products. Only a few lenders now have no deposit home loans and those who do have very strict eligibility criteria.
However, with a good credit score, you can still apply for a minimum deposit, or low deposit home loan, which provides a loan-to-value (LVR) of 95 per cent. You’ll still have to pay a deposit of five per cent of the purchase price, and in most cases, you will also have to pay LMI.
What are the alternatives to no deposit home loans?
If you aren’t eligible for a home loan with no down payment as a first home buyer and don’t have enough for a large deposit, there are some alternatives you may wish to consider.
The First Home Owners Grant (FHOG)
Some state and territory governments in Australia offer schemes to help people to buy their first property. For example, the NSW Government has a program that provides $10,000 to first home buyers who purchase a newly built home worth $750,000 or less. The Victorian Government has a similar scheme on offer, with the grant amount increasing to $20,000 for new homes built in regional Victoria.
Many lenders are happy to consider these payments as deposits towards your home if you’re eligible for these grants.
A guarantor loan
Some people secure a home loan without any deposit by using a guarantor. The guarantor uses the equity in their property as security. Depending on the guarantor’s circumstances, some first home buyers or builders are able to borrow up to 105 per cent of the purchase price.
Of course, the borrowing amounts and eligibility criteria can vary from one lender to another. Also, if you default on your loan, it could put your guarantor’s property at risk. You should browse your options carefully and seek advice if in doubt.
The First Home Super Saver Scheme
The First Home Super Saver Scheme (FHSSS) allows people to make voluntary contributions to their super, which can then be withdrawn for a home deposit. However, given super is designed to support you after you retire, there are strict rules around this scheme. You can read more about the program and its rules on the ATO website.
A financial gift
If you want to buy your first home with no down payment, your parents or other close relatives can help you with the deposit through a one-off financial gift. While lenders don’t mind using your financial gift as a deposit for your home loan, most lenders will want to see that you have a history of regular savings and a steady income to ensure you’re able to repay your mortgage. There may also be tax and legal rules to consider around gifting, so it’s important all parties do their homework.