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Low deposit home loans
Saving a home deposit can seem impossible, especially if you're striving for a six-figure deposit. But as our home loan experts reveal, you may be able to buy a home with less, even as little as a 5% deposit.
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Low deposit home loans have loan to value ratios (LVRs) of 90-95%, meaning you borrow 90-95% of the property's value, and you pay a deposit of 5-10%. These types of home loans let Australian borrowers buy properties sooner, as you don't have to save a full 20% deposit. In some cities, like Sydney and Melbourne, a 20% deposit can be a six-figure sum.
Low deposit home loans often come with higher rates, and with the extra cost of lenders mortgage insurance (LMI), which can amount to several thousands of dollars. Lenders may also scrutinise your loan application more carefully, which we'll explain in more detail below.
Here's everything you need to know about low deposit home loans and how to apply for a loan that gets you on the property ladder sooner.
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2.61 %
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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.
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What's in this guide?
What is a low deposit home loan?
Most Australian home loans require a 20% deposit. If your deposit is less than 20% of the property's purchase price, you will need to apply for a low deposit home loan.
Low deposit home loans are exactly the same as other home loans, but they may have slightly higher interest rates to compensate for the fact that the bank is taking on a higher risk when accepting your loan.
Borrowers who take out low deposit home loans generally have to pay lenders mortgage insurance (LMI), although there are ways to avoid it – more on that soon.
Loan to value ratio, or LVR, is home loan jargon for minimum deposit size. Most home loans have maximum LVRs of 80%, which means you need to provide 20% of the property purchase price as a deposit. But home loans also have a maximum insured LVR, which can be 80% or higher.
If a home loan has a maximum insured LVR of 90% or 95%, then it's a low deposit home loan.
Here's a simple breakdown:
- A loan has a maximum LVR of 80% and a maximum insured LVR of 80%. You need a 20% deposit. This loan is not a low deposit home loan.
- A loan has a maximum LVR of 80% and a maximum insured LVR of 90%. You can get this loan with a 20% deposit (and pay no LMI) or a 10% deposit (and pay LMI). This is a low deposit home loan.
Can I get a home loan with a 5% deposit?
According to Mortgage Choice CEO Susan Mitchell, yes, it is possible to get a home loan with as little as just 5% deposit saved.
"You can secure a home loan with a 5% deposit, plus stamp duty and other costs associated with property buying, but you may be required to pay Lender's Mortgage Insurance (LMI)," she says.
"The cost of LMI will vary depending on the size of your deposit and the purchase price of the property you're buying."
First home buyers who meet the eligibility criteria may be also be able to secure a home loan with a 5% deposit without paying LMI, thanks to the government's First Home Loan Deposit Scheme (FHLDS). There are 10,000 places available under the scheme each financial year.
Mitchell says to keep in mind that the interest rate may go up if your home loan loan deposit is lower than 20%.
"Most lenders will price home loans based on LVR bands, so you may face a higher interest rate if you contribute a smaller deposit," she says.
What is lenders mortgage insurance?
If you buy a property with a small deposit your lender views you as a higher risk borrower. This means you have to pay an LMI premium when you get the loan.
Even though you are the one paying the premium, lenders mortgage insurance does not protect you as a borrower. It protects your lender in the event that you can't repay your loan. Essentially, you are taking out this insurance to reassure the bank that if you can't repay the loan for any reason, insurance will kick in and the lender won't be left out of pocket.
LMI premiums vary depending on your deposit size, property value and loan amount. It can add thousands or even tens of thousands to your loan.
For example, a $600,000 loan with a $60,000 (10%) deposit could generate an LMI premium of around $13,000. Understandably, LMI is one of the biggest costs of buying a property that low deposit borrowers need to budget for.
Can I get a low deposit mortgage and avoid paying LMI?
If you have a parental guarantor to guarantee part of your deposit you can get a low deposit home loan while avoiding LMI.
Eligible first home buyers may also be able to borrow 95% of their home's value under the First Home Loan Deposit Scheme. In this scheme, the federal government acts like a guarantor, in partnership with specific lenders, and the borrower can avoid paying LMI premiums. The cost savings here can be significant and help you buy your own home sooner.
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/or pay off your home loan sooner, so look for a loan with features you can benefit from.
- Lender. Some lenders are small with few branches or "bricks and mortar" premises. Others are entirely online, while some still have extensive branch networks and in-person support. 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% – which is why you need to focus your research on those lenders whose loan criteria suits low deposit borrowers.
How to apply for a low deposit home loan
It can be harder to get a loan with a lower deposit as the bank wants to make sure it's not taking on a big risk. This means you need to ensure your mortgage application is strong, with your paperwork in order and your everyday spending under control.
If your bank sees high credit card debt, low savings and a lot of Uber Eats, bar tabs and retail shopping in your bank statements, it may be worried about your spending habits, and less convinced that you will be responsible in repaying your loan on time every month.
Here are some tips to help you succeed when putting together your low deposit home loan application:
- 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%, so check the credit policy with prospective lenders before shopping for property.
- 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, because they'll view this as being steady employment. Lots of job changes can make them more nervous about your reliability.
- 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
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 rein 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 situations stable from the time you apply until you settle and move in. Then you can do what you like.
The pros and cons of a low deposit home loan
There are benefits and drawbacks to buying property with a smaller deposit, so it's a good idea to work out exactly what suits your own situation.
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 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 may also pay more interest with a low deposit loan, simply because you're borrowing more money. Let's look at a basic example.
Full vs low deposit home loans
| Details | Low deposit | Full deposit |
|---|---|---|
| Property value | $500,000 | $500,000 |
| Deposit size | $25,000 (5%) | $100,000 (20%) |
| Loan amount | $475,000 | $400,000 |
| LMI costs | $14,871* | $0 |
| Interest rate (30-year loan) | 2.60% | 2.60% |
| Monthly repayments | $1,901 | $1,601 |
*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 $14,871 in LMI (although you may be able to 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).
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%.
No deposit loans, guarantors and other questions
You can't borrow 100% anymore. These loans were available pre-GFC, but these days lenders just consider it too risky.
The exception to this is a parental guarantee. If your parents own a property they could potentially guarantee a portion of your deposit for you.
It's a little complicated and it's not an option for everyone; our guide more thoroughly explains how guarantor home loans work.
If your parents are even more generous and financially comfortable, they could gift you the deposit.
I need help saving a deposit
Whether you're saving up for a low deposit home loan or you want to build up a 20% deposit, the same savings principles apply. Build your deposit by:
- Cutting back on your spending
- Finding extra sources of income or side hustles
- Trying to get a pay rise
- Considering a high interest savings account or term deposit to earn more interest
- Taking advantage of government schemes if you are eligible (first home buyers can use first home owner grants as part of their deposit)
Get more tips on saving a deposit for a house
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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.
Can I buy a property with a $10,000 deposit?
It is possible to get a property with such a small deposit but there are other costs to take into account.
Let's say you were looking to buy a $200,000 property in regional Australia and you had $10,000 saved as a deposit. That's 5% of the property's value. If you successfully applied for a home loan with a maximum insured LVR of 95% then you could actually buy a home for $10,000.
If you were a first home buyer buying a newly built property and you qualified for a first home owner grant, you could even use this money as your deposit.
But if you only had $10,000 saved up for all your costs then you might fall short. Consider these additional costs:
- Stamp duty: If you're a first home buyer you may be able to avoid stamp duty with a property price this low. Check out our stamp duty guide to learn more.
- LMI: According to Genworth's LMI premium estimator, buying a $200,000 property with a $10,000 deposit means you also need to pay $4,727 in LMI premiums. This cost may be waived if you're a first home buyer and eligible for the FHLDS.
- Conveyancing costs: You'll need a conveyancer to handle the legal aspects of the sale. Conveyancers charge around $1,000-$2,000.
- Mortgage fees: Your lender may charge some upfront fees, plus a valuation fee. This could cost you several hundred dollars or more. And then there's the mortgage registration fee, too (around $100).
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.
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Ask an Expert
We want to buy our first house and we have 5% of the deposit for a house of 450000. We want to know what we must do to enter the government program of the first 10,000 buyers of the year 2020 and not pay the LMI. Could you guide us on how to buy the house to be considered in this program? what to do and how?
Hi Armando,
Thank you for contacting Finder.
Yes, the First Home Owner Scheme can help you to avoid the Lender’s Mortgage Insurance (LMI) as if you only have 5% for the deposit, the government will guarantee you the 15%. You may read this page to know more about the requirements and how you can apply for it.
I hope this helps.
Please do not hesitate to reach out again to us if you have additional questions.
Cheers,
Ash
If pay 20% deposit, does it need to look at income?
Hi Andrew,
Thanks for contacting Finder.
Yes. When you apply for a home loan, most lenders will have to look at your income. They are interested in how much you make and how likely you are able to repay your loan and manage all your obligations every month.
Please review this page to know what to do before applying for a home loan to maximise your chance of approval.
Before applying, please ensure that you meet all the eligibility criteria and read through the details of the needed requirements as well as the relevant Product Disclosure Statements/Terms and Conditions when comparing your options before making a decision on whether it is right for you. You can also contact the provider if you have specific questions.
I hope this helps.
Kind Regards,
Faye
looking to buy a country farmlet between5 to 10 acres with a 4bed dwelling and much shedding , property located in country Victoria and I only have 5% for deposit. Could you direct me to institutions that could provide finance just under $300.000
Hi Santo,
Thank you for reaching out to Finder.
The page we are on offers lenders that you could reach out to specific to the loan you are requesting but for the property you are looking for you may want to reach out to a real estate specialist who can further assist you in locating that type of property. You may also reach out to a mortgage broker who can assist you in providing lender options. Hope this helps!
Cheers,
Reggie
I own my unit (will rent the unit at $600 a week) and a 3-bed house rented for $360 (all fully paid). I have part pension. I would like to buy a unit near my children. Can I get a loan on my properties, rent, and pension to more than enough to pay for a mortgage?
Which lender should I approach?
Thank you.
Hi Maria,
Thanks for getting in touch with Finder. I hope all is well with you. 😃
Since you own a few properties, you can opt for a reverse mortgage. This type of loan allows you to borrow equity from your property and spend it on a new home. If this interests you, please go to this page. On that page, you will be able to see a table that lists some of your options. You can use the table to compare your options based on interest rate, application fees, and ongoing fees, to name a few.
Alternatively, you can also check this page to learn more about how to get a home loan while you are on a pension. On that page, you will learn more about the considerations when applying for a home loan on a pension, what types of home loans might be available to pensioners, and how to compare home loans, to name a few.
Finally, please speak to a mortgage broker. They have the necessary knowledge and experience to help you explore your options. They will also take into consideration your whole situation before giving advice.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
Have a wonderful day!
Cheers,
Joshua
We have almost paid off our home in SE Brisbane (have about $10,000 to go). We are both aged pensioners with no savings as such. We are considering moving to a new place but want to build rather than buy a pre-existing home, as I did 30 years ago. One idea I had was to rent out our existing house and use the rent to pay off the new one if the bank will let us and taking into account what Centrelink says about it. Otherwise we would have to juggle contracts around selling and moving. Can we get a loan to buy a new place before our old one is sold if we go that way? I think they used to be called Bridging Loans?
Hi David,
Thanks for getting in touch with Finder. I hope all is well with you. 😃
Interesting thoughts and questions you got there, David. As for now, if you are planning to get a loan or what you mentioned, bridging loan, one of the main criteria lenders will look at is your source of income. There are not a lot of lenders who lend money to aged pensioners. However, there are still who can help. If you want to know how to get a home loan while on aged pension, please check this guide.
In that guide, how to get a home loan if you’re a pensioner, the considerations when applying for a home loan on a pension, types of home loans might be available to pensioners, and other related topics.
Now, it is true that you can rent out your existing property and the money you earn from it can also be considered by the lender and will increase your chance of getting approved.
Regarding your last question, a bridging loan can be a good option while you wait for your property to be sold. You can learn more about that here. But then again, since your main source of income is coming from Centrelink, you might have limited options. However, you can still give it a try. On the page I just gave you, there are lenders listed that you can compare based on interest rate, application fee, and monthly payment, to name a few.
Please make sure that you’ve read the relevant T&Cs or PDS of the loan products before making a decision. Moreover, check the eligibility requirements as well and consider whether the product is right for you.
Finally, please consider speaking to a mortgage broker. They have the right knowledge and experience to help you explore available options.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
Have a wonderful day!
Cheers,
Joshua
I am a Pensioner and have maintained my Bankwest homeloan for 12 years. I now am finding I would like to refinance with a lower interest and am wondering about my chances? I still owe 127,000 and really want to be able to reduce the payments that I make now of nearly $400.00 per month. this doesn’t allow for me to have much left for living!! Hope you can help…. Beverly
Hi Beverly,
Thank you for reaching out to finder.
The page we are on offers an array of lenders that could assist you in refinancing your loan. You may have a side by side comparison done by clicking the “Compare” button up to 4 lenders to see which is the best choice for you. Kindly review and compare your options on the table displaying the available providers. Once you have chosen a particular provider, you may then click on the “Go to site” button and you will be redirected to the provider’s website where you can proceed with the application or get in touch with their representatives for further inquiries you may have.
Before applying, please ensure that you meet all the eligibility criteria and read through the details of the needed requirements as well as the relevant Product Disclosure Statements/Terms and Conditions when comparing your options before making a decision on whether it is right for you. You may also check on the calculator available on the page to see how much your monthly repayment would be based on the figures you enter. Hope this helps!
Cheers,
Reggie
can I still get a loan if im on a pension
Hi Natalie,
Thanks for getting in touch! You can apply for a home loan while on pension and you can find providers who may consider your application on this page. It’s helpful to know that given your income will come from pension might limit your success in getting a home loan. As our page further explains – it is mainly because the pension is lower than the normal income of other applicants who are applying and the income level required. If you have assets and believe you can meet lending requirements, it might be a good idea to discuss your position in person with your financial provider or mortgage broker, as applying online may be difficult if you can’t demonstrate your capacity to repay the loan.
Hope this helps!
Best,
Nikki
Hi there,
My husband and I have been struggling to save enough deposit for our first home as we pay the rent $460/wk. My husband works only while I look after our 3 and 5 years old boys. Couple of banks say we can just only borrow around low 300k for buying a house.
Is there any better way for us to buy our first home as soon as possible? thanks :)
Kind regarts
Jonelle
Hi Jonelle,
Thank you for reaching out to finder.
Apart from checking on lenders who can assist you in purchasing your first home, you may want to check your eligibility for a First Home Owners Grant. Clicking this link will give you a short quiz that you can take to check your eligibility. It also defines the eligibility requirement state by state. Hope this helps!
Cheers,
Reggie
I want to buy a home at Douglas point as owner-occupier, I am able to come up with the 5% deposit and the money to cover the fees and stamp duty through the different avenues in which I have money tied up, eg: shares, cars, savings. But need to find a lender who will do the best mortgage deal, for the area as a couple banks in my area say the postcode is in a high risk area and need 20%.
Hi Anthony,
Thanks for getting in touch with finder. I’m sorry to hear that a few banks have rejected your application.
I would advise that you continue comparing your options using our table above. The lenders on our table provide mortgages with low downpayment options. You can then click on the “Go to site” green button to discuss with them your situation and confirm if they can provide you with your needed loan.
Please make sure that you’ve read the relevant T&Cs or PDS of the loan products before making a decision. Moreover, check the eligibility requirements as well and consider whether the product is right for you.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
Have a wonderful day!
Cheers,
Joshua
Hi my husband & I have purchased a block about 7 months ago and we want to build a house on it but we are not entitled to the first home owners grant and have very little as a deposit what is the best way to go about it thanks
Hi Donna,
Thanks for getting in touch with Finder. I hope all is well with you. :)
It is worth noting that most home construction loan lenders will want at least 20% of the total cost put down as a deposit. This is because your lot is not of great value yet without a building on it.
As this might be the case, it would still be worth checking out our list of home construction loans. But it is not just the cost you need to consider before choosing to build. On that page, you will see a table that allows you to conveniently compare your options. The table includes interest rates, ongoing fees, and monthly payments, to name a few. Once you find the right one for you, click on the “Enquire now” green button to learn more.
The page that I just shared with you also includes guides and tips on finding the right construction loan for you. So, it is really worth reviewing.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
Have a wonderful day!
Cheers,
Joshua