The answer to the question ‘can I get a personal loan for a house deposit?’ is technically yes, depending on your personal circumstances.
While it may be possible, it is not an option available to everyone and could work out to be more costly when higher interest rates from personal loans are taken into account.
It is also dependent on whether the lender is willing to accept money that has been loaned as a deposit.
Some people consider borrowing from parents or friends as an alternative if they don’t have enough of a deposit for a home loan. Others choose to save for longer and delay their buying plans by a year or two.
Remember, besides your home loan deposit, you also have to think about other fees and costs you may have to pay, including stamp duty.
Borrowing more than 80 per cent of the property’s value often attracts Lenders Mortgage Insurance (LMI), which is the lender’s insurance against loan default. Having a 20 per cent deposit usually means you don’t have to pay LMI.
However, some people who don’t have a 20 per cent deposit may consider getting a personal loan.
Factors affecting your chances of getting a personal loan for a house deposit
Getting a personal loan for a house deposit depends on a variety of factors, including your credit history, repayment capacity and personal circumstances.
Your credit history
Lenders need to check your credit history to gauge how good you are at paying back loans on time. If you have not taken a loan or credit card earlier, then you may not have any borrowing and payment history to get a credit score. If you have ever defaulted on your loan or credit card payments, your credit score may not be as good as it could be. Both these scenarios may be an obstacle to getting a personal loan in addition to a home loan.
How much you can afford to repay from a lender’s perspective
All lenders study your bank account statements for up to 6 months to determine your income and expenses each month. They need to assure themselves that you are in a position to meet your monthly loan obligations.
Why it may not be a good idea to get a personal loan for a house deposit
Using a personal loan for a house deposit is often the last resort for people who plan to apply for a home loan as it is both expensive and creates an additional debt burden. Given not every lender accepts personal loans as deposits, it’s worth investigating before going down this path.
Other things to keep in mind
- Rules for the initial deposit are dependent on the borrower’s circumstances. If you are a first-time borrower and haven’t yet built up a credit score then it is tough to prove your credit-worthiness, so your bank may ask you for a larger deposit.
- If you’re eligible for the First Home Loan Deposit Scheme, you may only be required to pay a 5 per cent deposit without taking the LMI. The Federal Government guarantees the balance shortfall in the deposit.