For many Australians, saving for a home deposit can feel like a monumental challenge. With the typical deposit amounting to 20% of a property’s value, the numbers can quickly soar into six figures – especially as interest rates continue to rise. But if you don’t have a large deposit saved, don’t worry just yet. There are still ways to secure a home loan. You can still do so with little, to no deposit, allowing you to get your foot on the property ladder faster than you might think.
Can You Buy a Property with No Deposit?
Yes, it’s possible to purchase property and secure a home loan with no deposit. There are several pathways available, depending on your financial situation.
Loan Options for Buyers with No Deposit
1. OwnHome Deposit Boost Loan
One option for buyers with a low deposit is the OwnHome Deposit Boost Loan. This loan allows you to pay as little as 2.2% upfront while the lender covers the rest of your 20% deposit – saving you from paying Lenders Mortgage Insurance (LMI). Here’s a simple breakdown of how it works:
- You provide a 2.2% deposit, and the lender funds the remainder of your deposit, giving you access to an 80% Loan-to-Value Ratio (LVR) mortgage.
- You are free to select the best home loan for your needs, while a mortgage broker assists you through the process with applicable lenders.
- You repay the OwnHome Deposit Boost Loan over time, alongside your mortgage, effectively spreading out the deposit payments.
Interested in this option? Get in touch with us to find out more about how Roar Capital can assist.
2. Guarantor Home Loan
A guarantor home loan allows you to secure a mortgage using the equity of a family member or loved one. Your guarantor provides equity from their own property to act as security for your loan. With this type of loan, you may not need to contribute any deposit, or you can provide a smaller deposit while the guarantor covers the rest.
The guarantor essentially steps in as a security provider, making it easier to secure an 80% LVR loan without paying LMI. This approach enables some borrowers to access up to 110% of the property value, covering costs such as stamp duty and conveyancing fees.
3. Gifted Deposit
If a family member or loved one is willing to gift you a deposit – also commonly referred to as the “bank of mum and dad” – this can help you enter the property market sooner. A gifted deposit allows you to apply for a home loan without having to save the full amount on your own.
When using a gifted deposit, it’s essential to prove that the money is a genuine gift, not a loan. Additionally, lenders will still assess your financial situation, including your ability to make repayments and your credit score.
Low-Deposit Home Loans
If you have some savings but not a full deposit, a low-deposit home loan or a first home guarantee scheme loan might be the right fit. Some lenders offer loans with deposits as low as 5% or 10%, meaning you can borrow 90-95% of the property’s value. Keep in mind that these loans may come with higher interest rates and require Lenders Mortgage Insurance, as the lender takes on more risk.
Lenders Mortgage Insurance (LMI)
LMI is a one-time fee paid by borrowers who have less than a 20% deposit. The insurance protects the lender if the borrower defaults on the loan, and the cost can be significant. For this reason, it’s important to consider whether paying LMI is worth it compared to saving a larger deposit. You can read more about LMI on our website.
Is a Low-Deposit Loan Right for You?
While low-deposit loans can make homeownership more accessible, there are some trade-offs to consider. The higher the loan-to-value ratio, the more interest you’ll pay over the life of the loan. Additionally, higher LVR loans may have stricter lending criteria, including a more thorough examination of your finances.
Should You Save for a Larger Deposit?
Though no or low-deposit options can get you into the market faster, there are benefits to saving up a larger deposit. A 20% deposit saves you from paying LMI. It also reduces the amount of interest you’ll pay in the long term. Having a larger deposit may also improve your loan terms and increase your chances of approval.
If you’re thinking of buying your first home, it’s important to consider your financial goals. At the same time, explore all available options, such as the First Home Buyers Guarantee.
Whether you opt for a guarantor loan, a gifted deposit, or work on saving up for a larger deposit, understand your options. This will help you make the best decision for your situation.
At Roar Capital, we can help guide you through these choices and find the best solution for your homeownership journey. Contact us today to learn more about your options & we can help you achieve your dream of owning a home.
