How to use a 100% home loan to buy a home with no deposit
Prior to the global financial crisis (GFC), some lenders allowed consumers to borrow 100 -120% of the value of the property they were looking to purchase, often without proof of savings and without a deposit. With the GFC came tighter lending restrictions, and no-deposit home loans largely went the way of the dinosaur.
There are still low deposit home loans, which allow you to borrow with a deposit of as little as 5%. You can compare some of these home loans below. The table below can be used to compare home loans which allow guarantors. Note that the loans in the table below have maximum LVRs set. Loans with LVRs that go above the advertised ones using a guarantor may have different conditions, rates or fees.
But for those struggling to save a deposit, there is still one avenue available. Many lenders will still offer 100% home loans if a guarantor provides their house as security. Read on to find out more about 100% home loans with a guarantor. Note that the loans in the table below have maximum LVRs of 95%. Loans with LVRs above this using a guarantor may have different conditions, rates or fees.
Comparison of 95% max LVR home loans that allow guarantors
Rates last updated March 26th, 2017.
- Heritage Bank Discount Variable Home Loan - Special Rate Offer (Owner Occupier) New Customers Only
Advertised rate dropped to 3.79%
August 24th, 2016
- ING DIRECT Orange Advantage Loan - $150,000+ (LVR > 90% Owner Occupier)
Comparative rate increases by 0.15% | Interest rate increases by 0.15%
December 12th, 2016
- NAB Tailored Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier)
Comparative rate increases by 0.04% | Interest rate increases by 0.23%
January 16th, 2017
How do 100% home loans work?
Normal deposits to purchase a property are usually around 20% of the property's value. This demonstrates to your lender that you have the ability to save, and gives them an indication that you’ll be able to keep up your mortgage repayments. 100% home loans let you borrow a higher percentage of the property value and make it easier for you to own your own home without spending the time to save up a 20% deposit. This is only made possible through the help of a guarantor. A guarantor is a close family member who offers their own property as security if you default on your loan.
Learn more about guarantors
To learn more about securing a home loan with the help of a guarantor, read our comprehensive guide on guarantor home loans.
Monetary gifts from your parents or other family members can help you increase your deposit, but it’s important to note that most lenders today expect at least 5% of the property value through genuine savings. This usually includes time conditions, such as holding or establishing these savings over a number of months (usually around three months).
Things to consider about 100% home loans
If your parents or family members go guarantor on your loan, you also have to consider that they’re then responsible for keeping up your repayments in the event that you can no longer do it. You'll also need to pay all the normal application fees up front. It’s essential to consider if you will be able to afford a 100% home loan in the long run. Although it might give you instant access to funds for your home, you are still required to pay the loan and interest off accordingly.
Features of a 100% home loan
- Linked with a guarantor. Having a guarantor is not a decision that should be taken lightly. As mentioned, if the borrower defaults on the home loan, then the mark appears on both the borrower and guarantor’s credit history, not to mention that it will be the guarantor’s responsibility to pay back the default. Because of this, it’s important that you have a very close and trusting relationship with your guarantor.
- Maximum LVR. While the vast majority of home loans cap the amount you can borrow at 95% of the property value, these loans can allow you to borrow up to 100% - 120% of the property value as your loan amount. Some financial providers cap this loan amount, for example at $1,000,000. Your maximum loan amount will depend on which financial provider you elect to go with.
- Offset accounts. Some 100% home loans offer you the option of an offset account. This is where a transaction account is opened up as well with your home loan and the two are linked together. The money in your transaction account will be offset daily against your home loan, helping you reduce the end balance you have to pay.
- Additional repayments and/or general repayment flexibility. These home loans typically allow you to make additional repayments when you can to help you reduce your loan and avoid paying interest. There are also generally choices for flexible repayment options.
- Redraw facilities. 100% home loans often have a redraw facility. This means you can redraw repayments that you have already made when you need the money the most.
How to compare no deposit home loans
- Fees. As with all home loans, 100% home loans do have fees and charges. Some are upfront and some are on a monthly and annual basis. It’s important to compare the fees and charges associated with the loan before deciding which one is right for you.
- Interest rates. It’s also very important to compare the interest rate. As mentioned, these types of loans tend to have a higher interest rate than other home loans, so compare the rates across providers and select the best one for you.
- Flexibility. A flexible home loan is a good home loan. This may be in terms of flexibility in your repayments, the opportunity to redraw and any other flexibility the loan allows for you. Look at your options and go with a home loan that provides you with the most wiggle room on the things that matter to you.
- Restrictions. Some home loans will also have restrictions in regards to making additional repayments, redrawing etc. Try and select an account that isn’t restrictive and gives you some freedom.
If you decide a 100% home loan with a guarantor isn't the right fit for you, a low deposit loan might be a great way to get you into your first home sooner. Add them to your comparison of products today.