Looking for a no deposit home loan?
No deposit home loans are almost impossible to find in Australia these days. But if you can't get a 0% deposit home loan, there are alternatives, including 2% deposit home loans and home loans backed by a guarantor.
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What are no deposit home loans?
No deposit home loans are home loans in which the lender does not require the applicant to pay a deposit.
Who offers no deposit home loans?
In Australia, many lenders will no longer offer no deposit home loans. While it is presently very difficult to find a no deposit home loan, other options may be available.
Why don't lenders offer no deposit home loans?
There was a time when a typical Australian could borrow 100 per cent or even 105 per cent of the value of their property. But that's not the case any more.
Few lenders offer no deposit home loans because of thge 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 loans than people with larger deposits.
Regulators fear that 'riskier' borrowers might default on their home loans if interest rates significantly increased. In turn, this would have negative implications for Australia's banking system and wider economy.
What are some alternatives to no deposit home loans?
Although no deposit home loans are scarce and may not available, borrowers may have access to a few alternatives.
One alternative to a no deposit home loan is a guarantor loan. A guarantor loan is a home loan in which a parent or close family member guarantees your loan. This means that your guarantor is responsible for making your payments should you default on your loan.
Another alternative is a 95 per cent home loan. A home loan with a 95 per cent LVR, or loan-to-value ratio, will allow you to pay a low deposit on your loan.
Borrowers who already have a home loan 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.
How can I take out a home loan if I have bad credit?
It can be challenging to take out a home loan with bad credit, but it is possible. If you have bad credit, you can opt for a guarantor home loan so that your lender feels more secure in approving your application.
You may also be able to find a specialist lender who bases their decision on more than credit history.
What are high-LVR home loans?
High-LVR home loans are loans that have a higher LVR, or "loan-to-value ratio" than other home loans (which usually have an LVR of up to 80 per cent). In other words, the amount you borrow is much higher than the amount of deposit.
Consider an example in which an applicant is buying a home worth $300,000. A high-LVR home loan may have a 95 per cent LVR, which means the applicant would receive a loan of $285,000 and only have to deposit an amount of $15,000.
Who offers high-LVR home loans?
High-LVR home loans are offered by a range of banks, credit unions and non-bank lenders. Each will have different rates, fees and features, so it’s best to compare high-LVR home loans before you apply.
How do you compare high-LVR home loans?
When comparing high-LVR home loans, consider the interest rate, fees and maximum LVR. Decide how much you can afford to deposit and what loan-to-value ratio you need. Ensure you can afford to make the repayments on time and in full.
Another important factor to weigh up is whether or not you need to pay lender’s mortgage insurance.
Lender's Mortgage Insurance, or "LMI" as it’s known, is an insurance policy designed to protect the lender, rather than the borrower. Some lenders insist that borrowers take out LMI with high-LVR mortgages.
Case study: Andrew and Janet secure a high-LVR loan
Andrew and Janet want to buy their first home for $400,000. They both have a steady income and have been able to save $20,000, which is 5 per cent of the price of the house.
They thought they were set because they had met the deposit required for a 95 per cent LVR home loan – but what they forgot was that they needed an additional $15,000 for stamp duty, conveyancing and other transaction costs.
They didn’t want to wait to save the additional funds, so they asked Andrew’s parents to guarantee their 95 per cent LVR home loan. Because his parents agreed, Andrew and Janet were able to secure the high-LVR home loan and purchase their first property.
How can you improve your chances of being approved for a high-LVR home loan?
One of the most effective ways of improving your chances of being approved for a high-LVR home loan is to choose a loan that allows a family pledge or guarantor. A guarantor is especially important if you’re looking for bad credit home loans. A guarantor will be responsible for making your repayments should you default, which gives peace of mind to the lender.
Another option is to try to find ways to increase your deposit, because you will have more options open to you if you’re chasing a 95 per cent home loan rather than a 97 per cent home loan.
You could also consider speaking to a mortgage broker who specialises in borrowers with bad credit and/or low deposits.
What are the pros and cons of high-LVR home loans?
High-LVR home loans have upsides and downsides. The main benefit of a high-LVR home loan is that you should be able to buy sooner, potentially saving you money in the long run if it means spending less ‘dead money’ on rent and getting ahead of a rising market.
However, high-LVR home loans also have drawbacks. One of these drawbacks is that the eligibility criteria is strict. Applicants typically must have good credit and a history of paying on time.
Another disadvantage is that you will probably have to pay LMI, which may not be transferable should you want to refinance down the track.
How to save for a house deposit
If want a home loan but have no money saved for a deposit, there are ways make the saving process seem less daunting.
Budgeting your incoming and outgoing expenses is one good way to start saving for a home loan. Spend a month recording money going into and out of your account, and work out how much you have left over to save at the end. From there, you can take a critical look at what you spend your money on, and cut down on any unnecessary expenses.
Keeping your money in a high-interest savings account can also help you reach your goal of a home loan deposit much faster. The more money you put away in an account with a high interest rate, the more interest you can earn, so try to keep all your savings in the one place if possible. It’s also important to maintain a high enough minimum balance that you make more money in interest per year than the loan’s annual fee will cost you.
Property Personal Finance Writer
A property and personal finance writer, Nick Bendel covers property, loans, credit cards, superannuation, and other bank products. Nick has previously written for The Adviser, Mortgage Business, Lifehacker, Business Insider, Yahoo Finance, and InvestorDaily, and loves getting elbow-deep in the latest ABS, APRA and RBA data.
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Frequently asked questions
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).
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.
What is a low-deposit home loan?
A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.
For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.
As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.
How can I get a home loan with bad credit?
If you want to get a home loan with bad credit, you need to convince a lender that your problems are behind you and that you will, indeed, be able to repay a mortgage.
One step you might want to take is to visit a mortgage broker who specialises in bad credit home loans (also known as ‘non-conforming home loans’ or ‘sub-prime home loans’). An experienced broker will know which lenders to approach, and how to plead your case with each of them.
Two points to bear in mind are:
- Many home loan lenders don’t provide bad credit mortgages
- Each lender has its own policies, and therefore favours different things
If you’d prefer to directly approach the lender yourself, you’re more likely to find success with smaller non-bank lenders that specialise in bad credit home loans (as opposed to bigger banks that prefer ‘vanilla’ mortgages). That’s because these smaller lenders are more likely to treat you as a unique individual rather than judge you according to a one-size-fits-all policy.
Lenders try to minimise their risk, so if you want to get a home loan with bad credit, you need to do everything you can to convince lenders that you’re safer than your credit history might suggest. If possible, provide paperwork that shows:
- You have a secure job
- You have a steady income
- You’ve been reducing your debts
- You’ve been increasing your savings
How common are low-deposit home loans?
Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.
However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.
How do I take out a low-deposit home loan?
If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.
Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.
Are bad credit home loans dangerous?
Bad credit home loans can be dangerous if the borrower signs up for a loan they’ll struggle to repay. This might occur if the borrower takes out a mortgage at the limit of their financial capacity, especially if they have some combination of a low income, an insecure job and poor savings habits.
Bad credit home loans can also be dangerous if the borrower buys a home in a stagnant or falling market – because if the home has to be sold, they might be left with ‘negative equity’ (where the home is worth less than the mortgage).
That said, bad credit home loans can work out well if the borrower is able to repay the mortgage – for example, if they borrow conservatively, have a decent income, a secure job and good savings habits. Another good sign is if the borrower buys a property in a market that is likely to rise over the long term.
Who offers 40 year mortgages?
Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank.
Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.
What is a loan-to-value ratio (LVR)?
A loan-to-value ratio (otherwise known as a Loan to Valuation Ratio or LVR), is a calculation lenders make to work out the value of your loan versus the value of your property, expressed as a percentage. Lenders use this calculation to help assess your suitability for a home loan, and whether you need to pay lender’s mortgage insurance (LMI). As a general rule, most banks will require you to pay LMI if your loan-to-value ratio is 80 per cent or more. LVR is worked out by dividing the loan amount by the value of the property. If you are looking for a quick ball-park estimate of LVR, the size of your deposit is a good indicator as it is directly proportionate to your LVR. For instance, a loan with an LVR of 80 per cent requires a deposit of 20 per cent, while a 90 per cent LVR requires 10 per cent down payment.
LOAN AMOUNT / PROPERTY VALUE = LVR%
While this all sounds simple enough, it is worth doing a more accurate calculation of LVR before you commit to buying a place as there are some traps to be aware of. Firstly, the ‘loan amount’ is the price you paid for the property plus additional costs such as stamp duty and legal fees, minus your deposit amount. Secondly, the ‘property value’ is determined by your lender’s valuation of the property, not the price you paid for it, and sometimes these can differ so where possible, try and get your bank to evaluate the property before you put in an offer.
How do I refinance my home loan?
Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.
Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.
What are the responsibilities of a mortgage broker?
Mortgage brokers act as the go-between for borrowers looking for a home loan and the lenders offering the loan. They offer personalised advice to help borrowers choose the right home loan for their needs.
In Australia, mortgage brokers are required by law to carry an Australian Credit License (ACL) if they offer credit assistance services. Which is the legal term for guidance regarding the different kinds of credit offered by lenders, including home loan mortgages. They may not need this license if they are working for an aggregator, for instance, as a franchisee. In both these situations, they need to comply with the regulations laid down by the Australian Securities and Investments Commission (ASIC).
These regulations, which are stipulated by Australian legislation, require mortgage brokers to comply with what are called “responsible lending” and “best interest” obligations. Responsible lending obligations mean brokers have to suggest “suitable” home loans. This means loans that you can easily qualify for, actually meet your needs, and don’t prove unnecessarily challenging for you.
Starting 1 January 2021, mortgage brokers must comply with best interest obligations in addition to responsible lending obligations. These require mortgage brokers to act in the best interest of their customers and also requires them to prioritise their customers’ interests over their own. For instance, a mortgage broker may not recommend a lender who gives them a commission if that lender’s home loan offer does not benefit that particular customer.
What is a debt service ratio?
A method of gauging a borrower’s home loan serviceability (ability to afford home loan repayments), the debt service ratio (DSR) is the fraction of an applicant’s income that will need to go towards paying back a loan. The DSR is typically expressed as a percentage, and lenders may decline loans to borrowers with too high a DSR (often over 30 per cent).
What is a bad credit home loan?
A bad credit home loan is a mortgage for people with a low credit score. Lenders regard bad credit borrowers as riskier than ‘vanilla’ borrowers, so they tend to charge higher interest rates for bad credit home loans.
If you want a bad credit home loan, you’re more likely to get approved by a small non-bank lender than by a big four bank or another mainstream lender.
What if I can't pay off my guaranteed home loan?
If you can’t pay off your guaranteed home loan, your lender might chase your guarantor for the money.
A guaranteed home loan is a legally binding agreement in which the guarantor assumes overall responsibility for the mortgage. So if the borrower falls behind on their mortgage, the lender might insist that the guarantor cover the repayments. If the guarantor fails to do so, the lender might seize the guarantor’s security (which is often the family home) so it can recoup its money.
Does each product always have the same rating?
No, the rating you see depends on a number of factors and can change as you tell us more about your loan profile and preferences. The reasons you may see a different rating:
- Lenders have made changes. Our ratings show the relative competitiveness of all the products listed at a given time. As the listing change, so do the ratings.
- You have updated you profile. If you increase your loan amount, the impact of different rates and fees will change which loans are the lowest cost for you.
- You adjust your preferences. The more you search for flexible loan features, the more importance we assign to the Flexibility Score. You can also adjust your Flexibility Weighting yourself, which will recalculate the ratings with preference given to more flexible loans.
How much are repayments on a $250K mortgage?
The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.
For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.
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What is the flexibility score?
Today’s home loans often try to lure borrowers with a range of flexible features, including offset accounts, redraw facilities, repayment frequency options, repayment holidays, split loan options and portability. Real Time Ratings™ weights each of these features based on popularity and gives loans a ‘flexibility score’ based on how much they cater to borrowers’ needs over time. The aim is to give a higher score to loans which give borrowers more features and options.
Select a number of years to see how much money you can save with different home loans over time.
e.g. To see how much you could save in two years by switching mortgages, set the slider to 2.