No deposit home loans: Dream now, pay later-ish
Struggling to build up enough savings for a home deposit? You could get a home loan without one, but it’s not a free ride.
Key takeaways
- No deposit home loans allow you to take out a home loan to buy property without the usual 5% - 20% deposit.
- Taking out a no deposit home loan usually requires you to have a family or government guarantee.
- There are risks to a no deposit home loan, such as the much higher borrowing amount and possible higher interest rates.
What is a no deposit home loan?
A no deposit home loan is where a home buyer borrows 100% of the property price.
Usually, buyers need 20% of the property price to borrow money to buy their home. In some cases they only need as little as 10% or even 5%, if they're willing to pay lender's mortgage insurance or if they're using a government scheme.
With a 0% deposit home loan, the borrower wouldn't need any savings to put down as a deposit.
No deposit home loans aren't very common, but they are possible.
Who offers a no deposit home loan?
The most common type of no deposit home loan is a guarantor home loan.
Major banks, second-tier lenders, customer-owner banks and non-banks offer guarantor loans.
But not every lender among those will offer the same LVR. Each lender will have different criteria to determine whether or not you can borrow 100% of the loan or a lower amount.
Some lenders may also offer no deposit home loans if you've got enough equity to use as security.
First home buyers with low deposits
70% of first home buyers said they will be buying or have bought with less than a 20% deposit.
15% said they were buying or have bought with 5%.
6% said they were buying or have bought with less than 5%.
15% said they were buying or have bought with 5%.
6% said they were buying or have bought with less than 5%.
Source:
Finder's First Home Buyer Report
How to qualify for a no deposit home loan
Each lender will have different eligibility criteria for not only whether or not you qualify for a no deposit home loan but how much you can borrow.
Lenders will look at:
- The loan amount
- The value of the property
- The value of your security / your guarantor's security
- Your ability to service the higher loan repayments.
You'll also need to meet the standard lending criteria around age and residency status.
What are the risks of a no deposit home loan?
- Higher borrowing amounts
- Higher interest rates
- Risk to existing assets
- Risk to family member's property and credit score, if using a guarantor
If you're acting as a guarantor it's advisable to seek legal advice from your own source.
How to compare no deposit home loans
- Check interest rates: The lower the interest rate, the lower your repayments will be.
- Check fees: Some loans will charge upfront and/or ongoing fees which can drive up the cost of the loan. Compare loans to see what's a reasonable fee for your loan type.
- Check conditions: For a no deposit home loan you'll need to make sure you're eligible and meet the lender's conditions.
It's also a good idea to seek professional advice from a mortgage broker. They'll know which lenders are open to lending without a deposit, whether through existing security or a guarantor.
Frequently asked questions
Sources
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