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Low deposit home loans

Can't save a 20% deposit? You can get a home loan with one as low as 10% or even 5%. Have a guarantor? You might be able to buy with no deposit.

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Name Interest Rate p.a. Comparison Rate p.a. Fees Monthly Payment
Principal & Interest5% min. depositOwner-occupierOffset account
Interest Rate
Comparison Rate
Application: $0
Ongoing: $0 p.a.
Monthly Payment
Principal & Interest10% min. depositOwner-occupier
Interest Rate
Comparison Rate
Application: $449
Ongoing: $0 p.a.
Monthly Payment
Principal & Interest10% min. depositOwner-occupierOffset account
Interest Rate
Comparison Rate
Application: $0
Ongoing: $390 p.a.
Monthly Payment
Principal & Interest10% min. depositInvestment
Interest Rate
Comparison Rate
Application: $449
Ongoing: $0 p.a.
Monthly Payment
Principal & Interest10% min. depositOwner-occupier
Interest Rate
Comparison Rate
Application: $0
Ongoing: $0 p.a.
Monthly Payment
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How low deposit home loans work

A 20% deposit is the standard when buying property in Australia. But that's a tall order, especially in cities where house prices have risen so fast.

This is why many people choose low deposit home loans, which only require 10% deposits or even 5% deposits. Low deposit home loans let borrowers buy homes faster, without having to save big deposits.

But there is a catch. When your deposit falls below 20%, lenders charge you something called a lenders mortgage insurance (LMI) premium. This can add thousands of dollars to your property buying costs.

Is a low deposit home loan the right option for you?

Given how hard it is to save a 20% deposit, many buyers still go for low deposit loans even with the LMI cost added on. Let's break down the costs and challenges of getting a low deposit loan.

The benefits

Low deposit home loans allow you to buy a property faster. If you're buying a property for $500,000, a 20% deposit is $100,000. A 5% deposit is only $25,000 while a 10% deposit is $50,000.

It's far more realistic and achievable to save up $25,000 than $100,000, so low deposit loans enable you to get on the property ladder sooner.

Buying a property sooner means borrowing more and having a higher overall mortgage amount, but getting into the property market faster. If prices increase this puts you in a better position, because even with a small deposit, you're actually growing your equity and wealth via the property's capital gain in value.

The risks

A low deposit home loan means you may have to pay an LMI premium. This cost can range from several thousand dollars into the tens of thousands, depending on your deposit size and the cost of the property.

You may also pay more interest with a low deposit loan, simply because you're borrowing more money. Let's look at a basic example using Finder's LMI calculator.

Full vs low deposit home loans
DetailsLow depositFull deposit
Property value$500,000$500,000
Deposit size$25,000 (5%)$100,000 (20%)
Loan amount$475,000$400,000
LMI costs$15,888*$0
Interest rate (30-year loan)2.60%2.60%
Monthly repayments$1,901$1,601
Difference in repayments$300 more

The difference in cost is clear. With a 5% deposit you'll pay $15,888 in LMI on top. Alternatively, you could capitalise this cost onto your loan and borrow the LMI money along with your mortgage, so you don't need to pay the full amount upfront).

With a deposit of just $25,000, you'll also pay $300 more in repayments per month, or $3,600 a year.

You also need to consider how long it would take you to save $100,000 versus $25,000. It could take several more years to save a full $100,000 deposit in the example above, by which time home prices may have increased, meaning you need an even bigger deposit – or you have to pay LMI anyway, as your deposit is now worth less than 20%.

A smaller deposit means less equity, and that can be risky

If you buy a home with a 5% deposit then you start the mortgage only owning 5% of your home. The rest is debt. If you make repayments on the loan, the percentage of debt shrinks and the amount of the property you own grows. This is also called equity.

But what happens if you can't make repayments, or you need to sell the home suddenly? What happens if property prices fall? In these scenarios, owning a tiny part of your home is risky. You could find yourself in negative equity. You could sell the property and end up with nothing.

No deposit home loans

Most borrowers cannot borrow 100% of their property's value now. Lenders at most will lend you 95% and expect you to save at least a 5% deposit. But there is an exception: a home loan guarantor.

If your parents (or another family member potentially) own a property, they could guarantee a portion of your deposit for you. This means the guarantor is offering their property as security over your home loan. If you can't repay the debt, the lender can sell your home to recover the debt. And they could come after your guarantor's property too.

It's a slightly complicated and risky approach for the borrower (and their parents). But it's a lower risk prospect for the lender and the only true no deposit home loan option left in Australia.

Get creative with your deposit

Another way to get a home loan with a very low deposit is to get creative with how you pull your deposit together.

Here are some suggestions:

  • Parental gift. If your parents are even more generous and financially comfortable, they could gift you the deposit or part of it.
  • Use a first home owners grant. Many first home buyers can qualify for a grant of $10,000 (check our first home owners grant guide to see if you're eligible). This grant can form part of your deposit.
  • Boost your savings. This is a hard one (obviously!). But basic saving and budgeting tips are always helpful. You could cut back on your spending, find extra sources of income or try to get more from your existing cash with a high interest savings account or term deposit to earn more interest.

Get more tips on saving a deposit for a house

How to apply for a low deposit home loan

It can be harder to get approved for a home loan with a lower deposit. The smaller your deposit, the bigger the risk you are to a lender.

Some lenders may put you on a higher interest rate if your deposit is below 20%. But it may just mean the lender looks more carefully at your mortgage application.

As a low deposit borrower, you need to ensure that your application paperwork is in order and your everyday spending under control.

Here are some tips to help you get approved:

  • Check your credit score. Strengthen your chances of success by making sure there are no issues with your credit history.
  • Check where and what you're buying. Some lenders impose higher lending requirements on apartment purchases in certain postcodes. They might require a 20% deposit or even 30% depending on what you're looking for, and where you want to buy.
  • Examine your debts and spending. Strengthen your application by paying down debts such as credit cards – and as you repay them, lower the limits to avoid over-spending again. Try to limit your spending as much as you feasibly can before applying.
  • Talk to a mortgage broker. Mortgage brokers don't just connect you to a lender, they help you find one that is likely to accept your application based on their eligibility requirements. Professional help might be just the thing you need.

Organise a free chat with a broker now

Advice from an expert

3 tips for low deposit borrowers from Marissa Schulze, mortgage broker, property developer and director of Rise High Financial Solutions.

Marissa Schulze on low deposit home loansTighten up your spending

The most important thing for applicants of low deposit home loans is to review their living expenses and if they can, to tighten up their spending. Applicants should rein in their spending for the 6 months prior to applying for the loan.

Genuine savings and rental history

Some lenders like to see "genuine savings". That means the applicant has been consistently saving each month or fortnight to build up their savings bucket. If that's not the case and they've been given the deposit as a gift from parents then lenders often want to see that sum of money sitting in the applicant's account for 3 to 6 months before applying.

If the applicant is renting they can actually prove they have good rental history and use that to boost their application in place of genuine savings. Now that really only works for applicants who are actually renting through a property manager. Sometimes applicants renting from a private landlord will find that hard for the bank to accept. The banks trust the feedback from a property manager more than they would from a private landlord.

Don't make any big changes between pre-approval and settlement

Make sure your financial circumstances don't change from the time you apply for finance to at least settlement. A common mistake is that buyers get pre-approval and then quit their job or apply for a car loan or increase their credit card limit. People don't realise how that impacts their application. You need to keep your financial and employment situations stable from the time you apply until you settle and move in. Then you can do what you like.

How do I compare low deposit mortgages?

When looking at low deposit home loans, the same basic principles apply for any home loan comparison. The biggest difference is you need to pay more attention to the maximum insured LVR that is on offer.

The main considerations are:

  • Interest rate. With every home loan, a low interest rate means a cheaper home loan with lower repayments. Review and compare the most competitive interest rates available.
  • LVR. Make sure the loan you are looking at has a maximum insured LVR of 90% or higher, if you don't have a 20% deposit saved.
  • Loan type and repayments. Your loan has a purpose: to fund an investment property or your own home. Depending on this purpose, your loan type and repayment type may be principal and interest or interest only.
  • Fixed or variable. You can choose between a fixed home loan rate or a variable rate. Fixed rates offer more certainty but less flexibility. Variable rates can change up or down, but tend to have more features and are less costly to refinance.
  • Loan fees. Most home loans have fees, such as ongoing monthly account keeping fees or annual package fees.
  • Features. Some home loans allow you to make extra repayments or come with an offset account. These features can help you pay less interest and pay off your home loan sooner.
  • Lender. You can get a low deposit loan with a big bank, a small bank, or a lender that's entirely online. Different lenders may be willing to lend you more than others, or may be more accepting of low deposit borrowers. Some lenders don't offer any home loans to borrowers with deposits under 20%.

Find a low deposit home loan in your state or territory

Here's some more information about finding lenders, brokers and government support options for low deposit borrowers in your state or territory.

More guides on Finder

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