A low deposit home loan lets you borrow more than 80% of a property's value. This means you can save a 5-10% deposit and borrow the rest. It's a popular option for borrowers looking to buy their first home.
IMB Budget Home Loan
With the IMB Budget Home Loan - Special LVR <=90% (Owner Occupier, P&I, NSW and ACT borrowers only) you can borrow up to 90% of the property's value at a competitive interest rate with repayment flexibility.
- Interest rate of 2.78% p.a.
- Comparison rate of 2.84% p.a.
- Application fee of $449
- Maximum LVR: 90%
- Minimum borrowing: $75,000
- Max borrowing: $5,000,000
Compare home loans with low deposit options
After entering your details a mortgage broker from Aussie will call you. They will discuss your situation and help you find a suitable loan.
- A comparison of home loans from multiple lenders.
- Expert guidance through the entire application process.
- Free suburb and property reports.
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You can get a home loan with a 5% deposit
Australian homebuyers typically save a 20% deposit and borrow 80% of the property's value. But it's possible to borrow up 95%, meaning you only need a 5% deposit.
- A low deposit mortgage will have a maximum insured loan to value ratio (LVR) of 90% or 95%.
- First home buyers can use a first home owners grant as part of their deposit.
- If borrowing more than 80% you usually have to pay lenders mortgage insurance (LMI).
- It can be harder to get a low deposit home loan and you will pay more in interest.
How to apply for a low deposit home loan
It can be harder to get a loan with a lower deposit. You need to make sure your mortgage application is watertight.
Here are some tips to help you succeed:
- 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%. It's worth checking with prospective lenders before applying.
- Employment history. If you've been employed by the same company for several years you'll be in a better position from a lender's point of view.
- Examine your debts and spending. Strengthen your application by paying down urgent debts such as credit card debt. 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.
Advice from an expert
Three tips from Marissa Schulze, mortgage broker, property developer and director of Rise High Financial Solutions.
Tighten 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 reign in their spending for the six 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 three to six 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 situation stable from the time you apply until you settle and move in. Then you can do what you like.
Should I get a low deposit home loan?
There are benefits and drawbacks to buying property with a smaller deposit. It's vital that you know exactly what works for your own situation.
Low deposit home loans allow you to buy a property faster. If you're buying a property for $500,000 then a 20% deposit is $100,000. A 5% deposit is only $25,000 while a 10% deposit is $50,000.
Buying a property sooner means borrowing more but getting into the property market faster. If prices jump up suddenly this puts you in a better position. Even with a small deposit you're actually growing your equity value via capital gain.
And sometimes saving a 20% deposit just feels like an impossible goal, especially if you're paying a lot of money in rent.
A low deposit home loan means you have to pay LMI premiums. 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 also pay more interest with a low deposit loan. That's simply because you're borrowing more money. Let's look at a basic example.
Full versus low deposit home loans
|Details||Low deposit||Full deposit|
|Deposit size||$25,000 (5%)||$100,000 (20%)|
|Interest rate (30-year loan)||3.00%||3.00%|
*LMI costs are estimates only and come from the Genworth LMI premium estimator.
The difference in cost is clear. With a 5% deposit you'll pay $15,960 in LMI (although can capitalise this cost onto your loan and borrow the LMI money along with your mortgage). You'll also pay $316 more in repayments per month, or $3,792 a year.
Speed and savings
But you also need to consider how long it would take you to save $100,000 versus $25,000. Assuming you have a 5% deposit in the example above, you're paying $2,002 in monthly repayments. If you were to save this money instead each month (assuming you didn't have to spend it on rent) it would take a little 37 months to save the extra $75,000 needed to reach a 20% deposit.
That's three whole years.
No deposit loans, guarantors and other options
You can't really borrow 100% any more. Lenders just consider it too risky (a lesson they learned from watching the GFC unfold in other countries). The exception to this is a parental guarantee. If your parents own a property they could theoretically guarantee a portion of your deposit for you.
It's a little complicated and unfortunately it's not an option for everyone. Read our guide to learn more about guarantor home loans.
If your parents are even more generous and financially comfortable they could gift you the deposit.
The first home loan deposit scheme
If you're a first home buyer with a 5% deposit saved there's a government scheme that will guarantee the remaining 15% of your mortgage. This means you can borrow 95% and avoid LMI.
Can I use super as part of my deposit?
Short answer: not directly. However, first home buyers can use extra super contributions to minimise tax and put it towards a deposit under the first home super saver scheme.
Investors can purchase investment properties through a self managed super fund loan.
Home Loan OffersImportant Information*
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ME Flexible Home Loan Fixed with Members Package - 2 Year Fixed Rate LVR <= 80% (Owner Occupier, P&I)
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Suncorp Back to Basics Home Loan - Better Together Special Offer $150k+ LVR<=90% Incl. LMI (Owner Occupier, P&I)
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000. Refinance to an eligible Suncorp loan and get a cashback of $2,000 or $3,000, depending on your loan amount. Other conditions apply.
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