100% home loans are a thing of the past. Here are some other ways to buy a home with no deposit.
Unsecured 100% home loans aren't around any more. But there are still low deposit home loans which allow you to borrow with a 5% deposit.
This guide will tell you how to find loans with low deposits or guarantor loans with no deposit at all.
What is a 100% home loan anyway?
Normal deposits are usually around 20% of a property's value. With a 100% home loan you could borrow a higher percentage of the property value, making it easier for you to own your own home without spending the time to save a 20% deposit.
What's the catch? You'll need a guarantor. A guarantor is a close family member who offers their own property as security if you default on your loan.
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.
Features of a 100% home loan
- Linked with a guarantor. The only true no-deposit home loans left in the market are guarantor home loans. Having a guarantor is not a decision that should be taken lightly. 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 becomes 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, guarantor 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.
- Offset accounts. Some 100% home loans offer you the option of an offset account. This is where a transaction account is opened up 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. Guarantor 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. This also allows you to release your guarantor earlier. Most lenders will allow your guarantor to be released once you've built up equity through regular repayments.
- 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.
Are there any risks with 100% home loans?
If your parents or family members go guarantor on your loan, you also have to consider that they’re responsible for keeping up your repayments in the event that you cannot. You'll also need to pay all the normal application fees up front.
And 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.
Can I get a no deposit home loan with no guarantor?
There's a reason why most homebuyers use a parent or close family member as a guarantor for a no deposit home loan. Most lenders won't give you a loan unless you have one. There are a few other options, but they can be quite restrictive or specific.
But you could get a loan without a guarantor by:
- Using equity in another property you own
- Purchasing a property through a self-managed super fund (but only for investment purposes)
- Using a personal loan as a deposit (though this is difficult and may involve high interest rates)
For most borrowers, using a guarantor is the way to go.
How do I compare no deposit home loans?
- Fees. As with all home loans, 100% guarantor 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. A lower rate could allow you to make extra repayments and release your guarantor sooner.
- 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.