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Compare low deposit home loans

You may only need to save a 5 per cent deposit to get a home loan. Compare low deposit home loans, and learn more about their benefits and other costs.

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What is a low deposit home loan?

To take out a home loan in Australia, you need to contribute a deposit to secure it, and how much you have will vary depending on your financial situation. If the deposit you make is less than 20 per cent, or even 10 per cent, of the value of the property, this is considered a low deposit home loan. 

Low deposit home loans work in exactly the same way as ‘traditional’ home loans; the only difference is you might incur higher interest rates because the bank is taking more of a risk when accepting your loan, considering that you’ve made less of an outlay and, therefore, have a bigger debt to pay back.

Typically, borrowers who secure a loan with a small deposit have to pay lenders mortgage insurance (LMI) but there are several strategies to avoid coughing up this extra cash. 

About lenders mortgage insurance: LMI is an insurance policy that covers the lender if the borrower defaults on their home loan repayments, allowing them to get their money back. It’s important to remember that even though the borrower pays the LMI, they are not covered—only the lender is. LMI premiums fluctuate depending on deposit size, loan amount and property value. Often, LMI can be added to the sum of your loan so you can make the loan repayments over time rather than all at once.

What is LVR?

LVR, meaning loan to value ratio, refers to the minimum deposit size you must have to secure a loan. The majority of home loans have a maximum LVR of 80 per cent, meaning you need to pay a 20 per cent deposit on the property; however, home loans can have a maximum insured LVR of 80 per cent or higher. If it’s a maximum insured LVR of 90 per cent or 95 per cent, then it’s a low deposit home loan. 

To put it in perspective:

  • A loan with a maximum LVR of 80 per cent and a maximum insured LVR of 80 per cent equates to a 20 per cent deposit. This is not a low deposit home loan.
  • A loan with a maximum LVR of 80 per cent and a maximum insured LVR of 90 per cent means you can get this loan with a 20 per cent deposit (and pay no LMI) or a 10 per cent deposit (and pay LMI). This is a low deposit home loan.

Can you get a home loan with a 5 per cent deposit or less?

Yes, it is possible to take out 5 per cent deposit home loans but it may be difficult to find a lender that offers them (disclaimer: the eligibility criteria for these low deposit loans will mean taking a good look into your credit history). In addition, it’s important to consider that the lower your deposit, the higher your interest is likely to be, and you will likely be on the hook for LMI as well.

The Australian Government has two low deposit home loan schemes where securing 5 per cent deposit home loans is possible for buyers (we’ll touch on this later).

What are the benefits and risks of a low deposit home loan?

There are several factors to weigh up when deciding if taking out a low deposit home loan is for you. Here’s a quick summary to help streamline your decision-making process.

Benefits of low deposit home loans:

  • You can buy and own a new home sooner—this is particularly appealing for first time buyers who are ready to stop renting and get into the property market by purchasing their own new home
  • By the time you save up a large deposit, house purchase prices may be higher than when you first started saving—making it harder to enter the property market
  • A lower deposit cuts down the time you’ll need to save up for your new home, so you can get your foot on the property ladder faster. Once you secure your home loan, you can begin building equity in your property for the future.

Risks of low deposit home loans:

  • Buying a property with a smaller deposit means you will have a larger debt overall
  • Low deposit home loans usually equate to higher interest rates and, therefore, higher monthly loan repayments
  • Borrowers who opt for a deposit less than 20 per cent will generally have to pay for LMI to cover the loan amount, which can cost thousands, unless it is a guarantor home loan.

Can you get a no deposit home loan?

No, you can’t get a home loan without a deposit—it’s considered too risky for lenders. The one loophole with this is the parental guarantee, which allows parents to guarantee a portion of your deposit for you (if they own a property themselves). There are obviously a range of factors and eligibility criteria involved in this decision, so it’s not something everyone can rely on. 

Can you get a home loan with a low income?

People sometimes assume it’s not possible to buy a home in Australia when you’re on a low income. But if you get the right deal, then home ownership can work out cheaper than renting and make it easier for you to support yourself independently in the long term, even if you don’t earn much from your job.

While your employment earnings are the main factor lenders use to work out what home loan repayments you can afford, they may also consider other income sources when you enquire about a home loan, such as Centrelink payments and other government payments. If you receive a pension, have a small inheritance, receive royalties for creative work or have rental income coming in from another property, these can all count.

You will need to provide documentary proof of all your income and three to six months’ worth of bank statements so the lender can be clear on exactly how much income you have at your disposal once your living expenses are taken into account.

Income isn’t all of what lenders consider when you make a home loan application. If you have good credit, you’ve shown that you can stick to payment plans in the past and you have low monthly outgoings, they may be very happy to have you as a customer.

What low deposit home loan schemes does the government offer?

First Home Loan Deposit Scheme (FHLDS)

FHLDS is a low deposit home loan scheme designed to support eligible first home buyers to purchase their first home sooner. 10,000 places are available in this scheme each financial year.

To be eligible for the scheme you must:

  • Be an Australian citizen 18 years or over (permanent residents are not eligible)
  • Be a couple that is married or in a de-facto relationship
  • If a single applicant, have a taxable income of up to $125,000 per annum for the previous financial year; if a couple, this increases to $200,000
  • Have at least 5 per cent of the value of the property in genuine savings, to use as a deposit—if 20 per cent or more is saved, then the home loan amount will not be covered by the scheme
  • Repay the principal and interest of the loan for the full period of the agreement (with limited exceptions for interest-only loans, which mainly relate to construction lending)
  • Intend to be owner-occupiers of the purchased property (investment properties are not supported by FHLDS)
  • Be first home buyers who have not previously owned, or had an interest in, a property in Australia, either separately or jointly with someone else (this includes residential strata and company title properties).

Family Home Guarantee

Another low deposit loan scheme, The Family Home Guarantee, helps single parents buy a family home with a deposit as low as 2 per cent. From 1 July 2021 to 30 June 2025, 10,000 family home guarantees will be available to eligible single parents with dependants.

To be eligible for this low deposit loan scheme you must:

  • Be an Australian citizen 18 years or over (permanent residents are not eligible)
  • Be a single parent with at least one dependent living with you
  • Have earned $125,000 or less last financial year
  • Not currently own a home but you can have owned a home before
  • Have at least a 2 per cent deposit to contribute towards your property purchase.
  • You cannot use the Family Home Guarantee to buy an investment property.

How do you buy a home with a low deposit?

If you don’t have a big deposit that allows you to pick and choose any property you want, there are options available to secure a place with what you have. These include:

  • Going for something smaller: Properties with less square metres can be have a lower valuation and purchase price, so you could consider a smaller property or an apartment
  • Looking in the outer suburbs: the most expensive suburbs are often the ones closest to the city centre, so it’s worth considering options that are a bit further away to get the most bang for your buck
  • Go regional: properties located on the outskirts of cities are less expensive to invest in and you can get a lot more for your money.

Alternatives to getting a home loan if you have a low deposit

If you only have a low deposit, and it’s not conducive to getting you the outcome you desire, there are other options to consider.

Guarantor home loan

A guarantor home loan is when family members, or potentially someone close to you, ‘guarantees’ the loan (or, in other words, has the responsibility of paying back the loan if you can’t). A guarantor usually has to offer equity as security for part or all of your mortgage.

You can apply for a guarantor home loan through a mortgage broker.

Joint application

As the name suggests, a joint home loan is when you take out a loan with someone else, such as a partner, family member or friend. While a joint home loan minimises costs, there are important factors to consider including who you buy with, how many people you buy with, the structure of ownership, and how you will handle disputes.

Joint home loans can be secured through mortgage brokers.

Saving up for longer

If you don’t have enough money to make a 20 per cent deposit on your desired property, saving up for longer is always an option. 

Some tips for putting money aside for your future property include: setting a budget and savings target; using a higher interest savings account; automating your savings; investing; and reducing debts where possible.

You also have the option of taking out a personal loan. Considering that you are essentially borrowing your home deposit, a personal loan will rack you up a higher debt and set of repayments (which will tarnish your credit score if you don't pay on time). A personal loan will also influence your borrowing power for a mortgage. 

Taking out a personal loan for a home deposit is therefore a risky route to take, and it’s repercussions should be seriously considered by buyers.

Enquire about the first home owners grant

If you're a first home buyer buying property as an owner occupier, you may be able to apply for your state or territory's first home owners grant (FHOG), which may help to supplement your savings to make up your deposit.

Speaking to a broker for more detailed advice

We understand it can be tricky to get your head around low deposit home loans, and the different costs and options out there. A mortgage broker can guide you through how it all works, the different loan products and your deposit options; they can also ensure your budget and financial goals align with your chosen loan and negotiate with the lender to best use the savings you have now and will have later.

When you enquire with a mortgage broker they can:

  • Look at your personal finances and help you work out whether a low rate home loan is the best choice for your financial situation
  • Help you work out if you’re eligible for the first home loan deposit scheme (FHLDS) or the first home owners grant (FHOG)
  • Calculate the upfront costs of a low deposit home loan, including the deposit, LMI, fees, and other charges, so you know how much saving you still have to do
  • Recommend lenders that offer low deposit home loans with features and benefits that may suit your financial situation
  • Negotiate with lenders on your behalf to help you get an even better deal on loan products
  • Help you navigate the loan application process.

Getting help from a mortgage broker is a pretty safe bet as it shouldn’t cost you any extra—the  majority of mortgage brokers in Australia are paid commissions by lenders, rather than charging fees to their clients.

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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