Given how high the cost of living and house prices are these days, it makes sense to wonder, “Why do I need to save up for a home loan deposit at all? Why can’t I just borrow the entire loan amount?”
It used to be you could borrow the entire property value from a bank — this was called a 100% home loan. However, these aren’t really a thing anymore in Australia because lenders have tightened their lending criteria.
Now, it’s common practice that borrowers pay 20% of the purchase price upfront as a deposit — a home loan covers the rest.
How much deposit you pay can directly impact the cost of your home loan repayments since it informs everything from your interest rate to your risk as a borrower. A larger deposit means less interest to pay over the life of your loan, generally speaking.
However, for first-home buyers, saving up for the house deposit in Australia can prove a monumental task. So, how can you get something close to a 100% home loan these days?
How to borrow a home loan with no deposit
OwnHome
For a Low Deposit Premium of up to 2.2% of the purchase price (minimum $9,500), you can top up your savings to a full 20% deposit with an OwnHome Deposit Boost Loan. Use the OwnHome upfront costs calculator to estimate your upfront costs.
Here's how our Deposit Boost Loan works:
Boost your deposit - Access a 20% deposit loan for a Low Deposit Premium of up to 2.2% of the purchase price (minimum $9,500).
Say bye to LMI - Pair it with a traditional 80% LVR mortgage.
Hello, homeowner - Find your dream home with OwnHome’s team of expert Buyer’s Agents, included when you pay your Low Deposit Premium upfront.
Enjoy your home! - Knock down a wall, paint your kitchen, get a pet! While relishing in all the joys of owning a home, you’ll make regular repayments to OwnHome, just like you do for your mortgage.
Guarantor
One of the main ways to get a home loan with no deposit is to have a guarantor.
A guarantor is typically a family member, such as a parent, grandparent, or sibling, over the age of eighteen who pledges a portion of their home equity as security for your home loan. They co-sign the contract with you and use their property as collateral.
Other eligibility criteria may apply, depending on the lender.
Guarantor example
Your mum agrees to go guarantor on your $500,000 home loan. You need a 20% deposit amount to avoid paying Lenders Mortgage Insurance (LMI) and the high interest rates associated with loan-to-value ratios (LVRs) above 80%.
So, your mum stakes $100,000 worth of her own home equity to use as your 20% deposit. Now, you can get pre-approval on your home loan application.
Pros and cons of being a guarantor
One of the immediate benefits of having a guarantor on your home loan is that you can borrow with a low deposit or no deposit. It can even increase your borrowing power, as some lenders will let you borrow up to 110% of the property's price if a guarantor is involved.
This can make buying property for the first time more attainable for owner-occupiers and investors alike because the upfront costs aren’t as steep. In an era of pricy real estate, it’s a huge leg up.
However, being a guarantor isn’t risk-free. Typical no-deposit home loans are seen as dicey because if you don’t have the deposit amount in genuine savings, it looks to a lender like you can’t afford the property's value and are, therefore, more likely to default.
Loan providers want you to afford your home loan, so if you default on your monthly repayments, your lender may have to sell your property or even chase up your guarantor for the lost value you owe. It’s a headache and heartache for everyone involved. Therefore, it’s vital to discuss this scenario with your guarantor before anyone signs on the dotted line.
Even if you have a guarantor, however, it doesn’t mean your home loan is free. You’ll still need to budget for other new home loan costs, such as:
You must also demonstrate a good credit history, a high credit score, and a reliable savings plan to show you’re living within your means. If you have no credit history, consider taking out a no-fee credit card for a year and only using it for purchases you can quickly repay.
Buying with a low or no deposit can make refinancing a longer journey, as most lenders want your loan to be 80% or less of the property value (at least 20% equity) to avoid LMI. If you want to refinance with a guarantor, consider your options and talk to a financial planner.
You can find the terms and conditions for a home loan guarantor in the product disclosure statement and target market determinations.
Other ways to borrow with no home loan deposit
Having a guarantor isn’t the only way to borrow without a house deposit. Depending on your financial situation, there are several options you have to borrow the entire home loan amount.
- Receive the deposit as a cash gift. If your family member isn’t comfortable becoming a guarantor, ask if they’ll consider gifting you the deposit amount instead. You’ll need a letter from them stating it’s a genuine gift, not a loan, and remember that your lender may not accept it as genuine savings.
- Use government help. The First Home Owner Grant is a state or territory grant, mostly for new homes, and the amount and rules vary by state. The Australian Government 5% Deposit Scheme lets eligible buyers purchase with a 5% deposit and no LMI.
- Buy with a low-deposit home loan. Some lenders will let you borrow with up to 95% LVR, but you will most likely have to pay LMI (which can run into the thousands) and the interest rate may be higher.
- OwnHome. OwnHome offers customers the ability to purchase a home for a Low Deposit Premium of up to 2.2% of the purchase price (minimum $9,500), plus government fees. Our Deposit Boost Loan funds your 20% deposit, and you can access an 80% LVR mortgage from another lender - with no LMI!
