How to get a home loan with only a 5% deposit

Rates and fees last updated on

A low deposit home loan allows you to borrow money for your upcoming property purchase with only a 5% deposit.

Low deposit home loans can be a good way to enter the property market for those who haven’t saved up enough for a normal deposit. With a low deposit loan, you are only required to have a 5% deposit, which is much lower than the regular 20% deposit required. These types of loans are very suitable for first-home buyers who want to enter the property market quickly. They’re also ideal for those who are on tight budgets and who struggle to make savings every month.

It’s important to note that these loans will often incur Lender’s Mortgage Insurance (LMI) which is an insurance premium that protects the lender, not you, if you default. As a borrower, you’ll need to consider whether the cost of this insurance, which runs into the thousands, is worth taking out so you can buy your property sooner.

Compare 95% home loans

Rates last updated September 23rd, 2017
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Loan purpose
Offset account
Loan type
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.84%
3.84%
$0
$0 p.a.
110%
Requires a family member to act as guarantor. Discounted rate available with family pledge loans. Family pledge loans require no LMI and no deposit. NSW, Qld and ACT only.
4.04%
5.05%
$600
$8 monthly ($96 p.a.)
95%
Fix in a competitive rate for three years. 350K NAB Rewards Points offer available. Terms and conditions apply.
4.03%
5.04%
$600
$10 monthly ($120 p.a.)
95%
Get a 2-year fixed rate with flexible repayment options to help you save.
3.98%
5.13%
$600
$8 monthly ($96 p.a.)
95%
A fixed rate home loan with additional repayment options. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.85%
4.95%
$0
$395 p.a.
95%
A discounted package rate for owner occupiers with the ability to package a Qantas rewards earning Amplify credit card. $1,500 cashback available for refinancers. Conditions apply.
3.99%
4.99%
$0
$395 p.a.
95%
A package home loan with fee free extra repayments available during the fixed term.
4.75%
5.05%
$0
$299 p.a.
95%
A fully featured home loan with an offset account and discounts available.
3.79%
5.26%
$600
$0 p.a.
95%
Short term fixed rate home loan with no ongoing fees with an interest only repayment option.
4.19%
4.83%
$0
$395 p.a.
95%
You can save on a host of Westpac products by packaging your 5-year fixed rate home loan.
5.55%
5.71%
$990
$10 monthly ($120 p.a.)
95%
Enjoy a competitive interest rate, make fee free extra repayments and a redraw facility.
4.45%
4.85%
$0
$395 p.a.
95%
Pay no application fee with 100% offset account with redraw facility and borrow up to 95% LVR.
4.62%
4.67%
$500
$0 p.a.
95%
Ideal for first home owners or anyone who wants a no-frills, basic variable rate home loan.
3.80%
3.81%
$0
$0 p.a.
95%
A no frills loan with a competitive rate and a maximum LVR of 95%.
5.24%
5.38%
$600
$8 monthly ($96 p.a.)
95%
The Westpac Rocket Repay Home Loan lets borrowers to own their home sooner with a 100% offset to save on interest.
4.70%
5.09%
$0
$395 p.a.
95%
A package home loan with discounted interest rate.

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How does a 95% home loan work?

Low deposit home loans work by giving you a home loan with a minimal required deposit (typically 5% of the loan value). Typically, the lender can approve a loan amount of up to 95% of the property value. This percentage is referred to as the loan to value ratio (LVR). In order to get a home loan with a low deposit approved, some lenders may require you to have a guarantor. This is someone (usually your parents or other close family member) whose property is used as the security for the loan in case you default. Typically with these loans, the fees and charges tend to be higher because of your lack of deposit and security.

Things to consider about 5% deposit loans

A 95% home loan sounds great for those who don’t have a deposit ready, but there are some things to keep in mind before applying for one.

Aside from the property deposit itself, there are other payments you will need to make, such as stamp duty and Lender's Mortgage Insurance (LMI). This means that typically you will need to provide more than 5% of the initial property value for your deposit. It’s important to keep this in mind when forming your 5% deposit.

Also, remember that borrowing more money means your repayments will be much higher than a comparable loan with a larger deposit. This is because you’re borrowing a larger amount of money so you will owe more interest. As mentioned, this type of home loan tends to attract higher fees as well to compensate for your deposit and risk.

You must also keep in mind the interest you will have to pay. The more money you borrow, the more interest you will have to pay on your loan amount. Interest can be quite a large cost to bear over the life of a loan.

Finally, you need to consider if you can afford this home loan. You will be required to make monthly repayments and if you can’t save up enough for a deposit, making repayments may be a struggle.

Features of low deposit home loans

95 per cent home loans are very similar to other home loans. The main differences between them is that the rates and fees may be different. Sometimes a lender may only offer the best rates and fees to customers with a higher deposit. Other than the deposit, these home loans typically include many of the following regular features:

  • Choice of fixed and variable rates. Lenders offer low deposit home loans with both fixed and variable rates.
  • Offset accounts. With some 95% home loans, your financial provider may give you the option to have an offset account. This is a transaction account that will be opened up and linked to your home loan and the money in your transaction account will be offset daily against your home loan. This will assist you in reducing your end balance.
  • Additional repayment flexibility. These kinds of home loans typically allow you to make additional repayments. This means you can make repayments above and beyond the minimum monthly repayments that you must make. This helps you to pay off your loan quicker and avoid interest.
  • 25-30 year loan term. Like a regular loan, a loan which requires only a 5% deposit will also come with a 25-30 year loan term.
  • Redraw facilities. These home loans typically also allow you to redraw. This means you can redraw additional repayments you’ve already made when you need the money. Your money won’t be locked up in repayments and you can still access your funds.

How to compare home loans

  • Fees. As mentioned, low deposit home loans typically have higher fees and charges. Look for a loan with minimal additional fees to avoid excessive costs. A key fee to look out for is the Lender’s Mortgage Insurance fee which you will be required to pay. This is a fee charged by the bank’s insurer for lending you money above the recommended 80% of the property value level.
  • Interest rate. Interest is the biggest payment you will have to make (aside from actually paying back your loan). When you do your comparisons, make sure you look out for a loan with a low interest rate. Also decide prior to comparing if you’re after a fixed or variable interest rate and compare loans accordingly.
  • Flexibility. Flexibility is extremely important when selecting home loans, especially for first-home buyers. Look out for a loan that offers you flexibility in repayments and the opportunity to redraw. For example, if a loan allows you to make flexible fortnightly repayments instead of only monthly repayments, this can be a good way to help you reduce your loan amount quicker.
  • Restrictions. The less restrictions your home loan has, the easier it will be for you. Look out for a home loan that gives you freedom in regards to payments, withdrawals, paying fees etc.

How to apply for home loans on finder.com.au

To apply for a home loan with finder.com.au, simply use the comparison table on this page and once you have chosen a loan, click ‘Go to Site’. To be eligible for 95 percent home loans, you typically need to meet the following requirements. You must:

  • Be at least 18 years of age
  • Be a permanent Australian resident
  • Have a good credit history
  • Have a good employment history
  • Have savings/assets. If you can demonstrate where your 5% deposit will come from, this will help your chances. Also, having some strong assets in your name will also ensure you have a better chance of being successful when applying for this type of loan.

Once you meet the above criteria, you are ready to proceed with your application. It’s important to ensure you have the following information and documents ready:

  • Proof of identification
  • Employment details
  • Financial details

To kickstart your homeownership dreams with a low deposit, a 95% home loan is a good option to consider.

Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at finder.com.au. Talk to him to find out more about home loans.

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