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Do you need a deposit for a home loan?

It is possible to get a home loan with no deposit in Australia, though it may not be easy. With the help of a guarantor, plus assistance from government grants and support schemes, it may be possible to buy a new home without paying an upfront deposit.

Most mortgage lenders prefer that borrowers pay a deposit on a property when they make a home loan application. A sizeable deposit of genuine savings can not only demonstrate your financial responsibility to a lender, it can also help to reduce the lender’s financial risk when they’re providing you a mortgage. This could let you benefit from a lower interest rate or more flexible home loan features and benefits.

Contact a broker about a no deposit home loan

Can you still get a 100% LVR home loan?

There was once a time when a typical Australian could apply to borrow 100 per cent or even 105 per cent of a property’s purchase price in the loan amount. But that's not the case anymore.

Few lenders offer this type of no deposit home loan anymore because of the risk involved. Regulators want to remove risk from the mortgage system, and people with smaller deposits or no deposits are regarded as more likely to default on their home loan repayments than people with larger deposits.

How can you get a home loan with no deposit?

There are options available to buy a property without paying a full deposit, such as:

  • Guarantor loans: A home loan where a parent or close family member guarantees your loan with the value of their own property. This makes your guarantor responsible for your mortgage should you default on your loan.
  • 95 per cent home loans: A home loan with a 95 per cent loan to value ratio (LVR) will allow you to pay a low deposit of just 5 per cent. Keep in mind that this could mean paying more for Lender's Mortgage Insurance (LMI).
  • First Home Owner's Grant (FHOG): If you're a first time buyer, you might be eligible for the First Home Owners Grant (FHOG) in your state or territory, which could cover part of (or even all of) the deposit for a low-deposit home loan, so you won't need as much savings.
  • First Home Loan Deposit Scheme (FHLDS): This program allows eligible borrowers to get a mortgage with a 5 per cent deposit and pay no Lender's Mortgage Insurance (LMI), with the government effectively serving as your guarantor. 
  • Equity: Borrowers who already have a home loan, including owner occupiers who are looking to buy an investment property, may be able to take out a new mortgage without paying a deposit. Instead, they can secure their loan using the equity in their current property.

What is Lender's Mortgage Insurance (LMI)?

Buying a property with low or no deposit often involves having to pay for Lender's Mortgage Insurance (LMI). It's important to consider LMI when budgeting for a no deposit home loan, as it can add thousands of dollars to your upfront costs.

Whenever you apply for a home loan with less than 20 per cent deposit or equity, your lender will likely take out an LMI policy to cover them against the risk that you could default on your monthly repayments. LMI only protects the lender - it does not protect the borrower. 

Lenders typically pass the cost of LMI on to the borrower. This cost is based on the size of your deposit or equity - the higher your LVR, the more you may have to pay for LMI. You can estimate the potential cost of LMI using an LMI Calculator and start planning your budget in advance

What are the benefits and risks of a no deposit home loan?
  • First home buyers could make a property purchase and move in sooner.
  • May save you money in the long run if it means spending less money on rent and getting ahead of a rising property market.
  • The eligibility criteria is strict. Applicants typically must have good credit and a history of paying on time.
  • You will likely have to pay LMI, which may not be transferable should you want to refinance down the track.

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What is a low deposit home loan?

Technically, any deposit smaller than 20 per cent of the property value is considered to be a low deposit loan. This is because loans with LVRs of more than 80 per cent are riskier for banks and mortgage lenders to provide, which is why they take out LMI policies in these cases.

However, many lenders still offer competitive home loan deals with minimum deposits of 10 per cent or even 5 per cent. Your savings, plus any government grants or other support you may qualify for, may allow you to buy your first property sooner, so any money you can save up may be able to help.

A low deposit home loan will often have a higher interest rate and/or fees than a home loan with an LVR of 80 per cent or more. There may also be stricter eligibility requirements, such as having a clean credit history.

But remember, after you’ve owned a property for a few years, if you’ve made extra repayments and/or your property has increased in value, you may be able to refinance your home loan and use your equity in place of a deposit. If it’s more than 20 per cent, you won’t have to pay LMI a second time, and you may be able to get a home loan that better suits your needs, possibly with a lower interest rate.

Can a broker help with no deposit home loans?

A mortgage broker is a loan industry expert who can help find the right home loan for you. Mortgage brokers can use their specialised knowledge to assess your financial profile from a lender’s perspective, and put you on the right track from the very beginning.

If you're specifically looking for a no or low deposit home loan, a broker can be particularly helpful, as they can help you identify suitable home loan choices, negotiate with lenders, and walk you through the application process.

While first home buyers looking for a no deposit home loan can benefit from talking to a mortgage broker, so can experienced investors wanting to use their equity. Mortgage brokers bring in financial expertise and experience with multiple lending situations that may not otherwise be available to you.

Some professions, such as doctors or engineers, may be able to apply for a no deposit home loan as their career makes them a high-value customer for mortgage lenders. These specialist home loans may not be widely advertised, so a broker may be able to help you enjoy the benefits offered by these home loan products.

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.

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 get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

How much deposit do I need for a home loan from NAB?

The right deposit size to get a home loan with an Australian lender will depend on the lender’s eligibility criteria and the value of your property.

Generally, lenders look favourably on applicants who save up a 20 per cent deposit for their property This also means applicants do not have to pay Lenders Mortgage Insurance (LMI). However, you may still be able to obtain a mortgage with a 10 - 15 per cent deposit.  

Keep in mind that NAB is one of the participating lenders for the First Home Loan Deposit Scheme, which allows eligible borrowers to buy a property with as low as a 5 per cent deposit without paying the LMI. The Federal Government guarantees up to 15 per cent of the deposit to help first-timers to become homeowners.

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