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Compare low deposit home loans

With a low deposit home loan you can buy a home sooner. Compare loans for borrowers with 10% and 5% deposits.

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By

Richard Whitten

Edited by

Joelle Grubb

Updated

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1 - 5 of 5
Updated regularly
Name Interest Rate p.a. Comparison Rate p.a. Fees Monthly Payment
IMB Budget Home Loan
Principal & Interest10% min. depositOwner-occupier
Interest Rate
6.34%
Comparison Rate
6.40%
Fees
Application: $449
Ongoing: $0 p.a.
Monthly Payment
$2,800
HSBC Standard Package Variable Rate
Principal & Interest10% min. depositOwner-occupierOffset account
Interest Rate
6.49%
Comparison Rate
6.85%
Fees
Application: $0
Ongoing: $390 p.a.
Monthly Payment
$2,844
G&C Mutual Bank Momentum Home Loan
Principal & Interest5% min. depositOwner-occupierOffset account
Interest Rate
6.44%
Comparison Rate
6.47%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$2,830
Australian Unity Health, Wealth and Happiness Package Home Loan
Principal & Interest10% min. depositOwner-occupier
Interest Rate
6.39%
Comparison Rate
6.73%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$2,815
IMB Budget Home Loan
Principal & Interest10% min. depositInvestment
Interest Rate
6.49%
Comparison Rate
6.55%
Fees
Application: $449
Ongoing: $0 p.a.
Monthly Payment
$2,844
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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 when house prices are so high.

Low deposit home loans only require 10% deposits or even 5% deposits. This means saving less, borrowing more, and buying a home sooner.

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.

Simple Extraction

You can enter the market faster when you buy with a low deposit

The lower your deposit, the quicker you can save it. If you're buying a property for $500,000, a 20% deposit is $100,000. A 10% deposit is $50,000 and a 5% deposit is only $25,000.

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.

Surgical Extraction

You can build equity faster and not worry about runaway prices

When property prices are rising fast, the amount required for a deposit grows in tandem. Jumping in early with a small deposit means you don't have to worry. Once you've got your foot on the property ladder, rising prices are good: You now own the asset.

And instead of building up a deposit you're now paying off a debt and building equity.

Wisdom Teeth

But low deposit home loans come with more costs

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.

A low deposit loan can end up more expensive

Here's a simple example of 2 home loans with identical interest rates based on a $800,000 property and a 30-year loan term. The only difference is the deposit size. You can see how this changes both the loan amount (and therefore the repayments) and the LMI premium.

DetailsLow depositFull deposit
Property value$800,000$800,000
Deposit size$40,000 (5%)$160,000 (20%)
Loan amount$760,000$640,000
LMI costs$34,982.80$0
Interest rate (30-year loan)6.00%6.00%
Monthly repayments$4,557$3,838
Difference in monthly repayments$719 more$719 less

In this hypothetical example, the low deposit borrower pays $34,982.80 in LMI premiums upfront, and an extra $719 a month in repayments. This is because they have to borrow more money.

Over the life of the loan this adds up to $139,006 in extra interest. Adding the LMI in, the low deposit home loan works out to be $173,988.80 more expensive.

But that doesn't mean the low deposit option is a bad idea

Choosing a low deposit home loan can still be worth it. You just need to have a clear idea of the costs involved. Plus, you can always minimise the interest charges over time by repaying more of the loan, or saving money in an offset account.

You also need to consider how long it would take you to save a 20% deposit. It could take you years.

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.

  • 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. 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:

  1. Check your credit score. Strengthen your chances of success by making sure there are no issues with your credit history.
  2. 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.
  3. 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.
  4. 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

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.

Don't make any big changes between pre-approval and 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 the loan and move in. Then you can do what you like.

Government support makes low deposit borrowing cheaper

There are now several federal government schemes that allow eligible borrowers to buy homes with 5% deposits. These schemes let you borrow 95% and avoid paying LMI. This means you can avoid quite a big cost associated with a low deposit mortgage.

These are the schemes:

  • First Home Guarantee. If you're a first home buyer you can use this scheme to buy or build a home with a 5% deposit and avoid LMI.
  • Family Home Guarantee. Under the Family Home Guarantee, eligible single parents can buy homes with 2% deposits and avoid LMI costs while borrowing the remaining 98%.
  • Regional First Home Buyer Guarantee. The Regional First Home Buyer Guarantee lets you buy or build a new home in regional Australia with a 5% deposit while avoiding LMI costs.

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 questions about borrowing with a small deposit

More guides on Finder

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55 Responses

    Default Gravatar
    MareeApril 23, 2024

    Is it possible for older Australians with only one income over 95K to purchase a home without a deposit?

    Reply
      AvatarFinder
      SarahApril 24, 2024Finder

      Hi Maree,

      It’s not possible to buy in most cases without any deposit at all, but you may be eligible for a loan with a 2% deposit under the Family Home Guarantee. There are some eligibility criteria, but as a guide: to buy a home worth $700,000, you would need a deposit of $14,000.

      Hope this helps!

      Reply
    Default Gravatar
    ArmandoSeptember 23, 2019

    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?

    Reply
      Default Gravatar
      AshSeptember 23, 2019

      Hi Armando,

      Thank you for contacting Finder.

      Yes, the First Home Loan Deposit 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 can check the FHLDS requirements and how you can apply for FHLDS for more details.

      I hope this helps.

      Please do not hesitate to reach out again to us if you have additional questions.

      Cheers,
      Ash

      Reply
    Default Gravatar
    AndrewAugust 11, 2019

    If pay 20% deposit, does it need to look at income?

    Reply
      AvatarFinder
      FayeAugust 13, 2019Finder

      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 our guide about applying for a home loan as well as the documents needed for a home loan. Once done, you may refer to the table above to compare low deposit home loans. When you are ready, press the ‘Go to site’ button to apply.

      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

      Reply
    Default Gravatar
    SantoApril 5, 2019

    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

    Reply
      AvatarFinder
      JohnApril 8, 2019Finder

      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

      Reply
    Default Gravatar
    MariaMarch 19, 2019

    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.

    Reply
      AvatarFinder
      JoshuaMarch 20, 2019Finder

      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, you can use our comparison table to compare your options. You can compare your options based on the interest rate, application fees, and ongoing fees, to name a few.

      Alternatively, you can also check our pensioners home loan guide 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 out again.

      Have a wonderful day!

      Cheers,
      Joshua

      Reply
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