What is the smallest home loan you can get?

If you’re shopping around for a home loan, you may be surprised to learn that borrowing a small amount can be just as challenging as trying to take out a massive mortgage. 

This is because home loan lenders will typically have minimum amounts they are willing to lend. As a home loan is a 25 to 30-year commitment, allowing you to borrow a very small amount may not be as economical for the lender over the loan term, even with interest charges.

Let’s explore home loan minimum amounts and how to calculate what you may be able to borrow for a mortgage. 

What is the minimum home loan amount?

According to the RateCity database, the smallest home loan you may be approved for is $110,480 on average. However, there are some lenders that may allow you to borrow as little as $500.

When you compare home loan options, you’ll notice that the lender will often specify a minimum and maximum loan amount. At RateCity, this may be specified under a home loan’s details as the ‘borrowing range’.

For example, at the time of writing, Commonwealth Bank’s Standard Variable home loan (Wealth Package Variable Home Loan paying Principal and Interest - LVR 70% - 80%) has a borrowing range of $150,000 to $100 million.

Smaller home loans may be beneficial in reducing the amount of debt you will repay over the life of the loan, as well as the deposit you need to purchase a property. Plus, by focusing on affordable property prices, you’ll only need a small deposit compared to one for a median priced home in capital cities like Sydney.

For example, a 20% deposit for a $110,480 home loan would be $22,096. This is much more affordable than saving up a six-figure home deposit - assuming you can find a property at this lower value. Nowadays, the average home loan sits at $584,836.

That being said, home loans are designed to help you purchase property due to the massive upfront cost involved if you were to purchase it outright. If you have the capacity to wait a little longer and save for the full purchase price instead, this would save you decades of paying interest to a lender.

What are the benefits of a small home loan?

• Smaller debt - By taking out a smaller home loan you are limiting the amount of debt to repay over the life of the loan.
• Smaller deposit needed- Get a foot on the property ladder faster by cutting down your saving time.
• Spend on other things - A small home loan may allow your budget the breathing room needed to save up for anything else, such as holiday or an emergency. 

What are the downsides of a small home loan?

• Fewer properties in capital cities - Your property search may be more challenging outside of regional areas due to the current market conditions.
• Fewer lender options - If you’re looking for a sub-$100,000 home loan, your lender options may be limited.
• Alternative options may be better - Spreading the cost of a smaller mortgage over 30 years plus interest compared to, say, saving up for the purchase price, could be more costly.

Calculate how much you can borrow

Want to know how much you could be approved to borrow for a home loan? RateCity has got you covered with our helpful Borrowing Power Calculator.

Simply enter some basic details that lenders will use to assess your application, such as your income, expenses and number of dependents (if any). The calculator will then generate an estimated home loan amount that lenders may approve you for, assuming you meet all the eligibility criteria involved.

For example, a single applicant with no dependents looking for an owner-occupier home loan earns $90,000 a year. They hop in the Borrowing Power Calculator and enter their details, and request that their expenses be automatically estimated as they aren’t sure this information off hand. 

They are then presented with an estimated borrowing range that lenders may approve them for in the current interest rate environment. 

Source: RateCity.com.au. Hypothetical example relevant as of 16/08/2023.

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