No Deposit Home Loans in Australia: Your Complete Guide
Buying a home without the dreaded 20-percent deposit in Australia is an aspiration for most first-time buyers. But, is it possible to get a clean no deposit home loan?
Before applying for these loans, it helps to understand what lenders imply when they say, “no deposit home loans.” The truth is, it’s pretty hard to find a lender that is willing to offer no deposit home loans.
Still, it’s helpful to understand what they mean and how exactly they work in Australia.
Keep on reading to learn more!
How Much Deposit Do I Need for a Home Loan in Australia?
In typical cases, you’ll need to pay a deposit of 20 percent of the price of the property you want to buy. Or, if your deposit is less than 20 percent, lenders will want you to buy Lenders Mortgage Insurance (LMI). LMI is used to protect the lender should you default on the loan.
For example, if the property price is $524,150, you’ll have to pay a deposit of $105,000 to qualify for a home loan.
For most Australians, saving such an amount is almost impossible. As such, the idea of no deposit home loans may seem exciting at first, particularly when you don’t understand the details.
Can I Use First Home Owners Grant as a Deposit?
The short answer is, YES. You can use First Home Owner Grants (FHOG) and other rebates to pay a part or all of your deposit.
However, there are several requirements that you must meet to use FHOG as a full deposit.
- You must be currently renting a home, and you’ll need to provide a clear track record of your rental payments for the past six months.
- The property you want to buy must be new with no history of occupancy
- Applicants must have a good credit history
- Your income should be adequate to meet the repayments once you get approved
- The grant must not exceed 5 percent of the property price
In some cases, you can be allowed to use rebates and incentives to pay the deposit amount. However, experts advise not to use these amounts as part of the deposit. Instead, use them for other costs in your home, such as buying furniture.
Unfortunately, the FHOG amount is likely not to be enough if you want to use it as a deposit. The amount ranges from $10,000 to $15,000 in most states, with the highest being $26,000 in the Northern Territory.
Can You Buy a House with No Deposit in Australia?
There was a time in Australia when it was possible to borrow up to 100 percent or 105 percent of the property value. Over time, that has become almost impossible with lenders trying to minimize the risk of such offers.
If you want to purchase a house in Australia without paying the deposit, you’ll need to have a guarantor. In this case, you can borrow up to 100 or 105 percent of the proper value of the guarantor, who will be responsible for making repayments should you default. You can avoid paying the LMI if the guarantor’s property has enough equity.
Still, you’ll need proof of your ability to pay the loan. For example, lenders will require you to have savings of at least 5 percent to 10 percent of the property price. You also need to provide your income details and bank statements to verify that you’re capable of meeting the loan obligations.
If you’re a preferred industry professional, such as a doctor or lawyer, you can borrow 90 to100 percent of the property value.
Alternative to No Deposit Home Loans
Although no deposit loans are generally scarce, lenders may have other loan products as an alternative.
One alternative is the guarantor loan, and this we’ve have covered above. Another option is borrowing up to 95 percent of the property price, but you pay a deposit of 5 percent and buy LMI. In this case, lenders assume the 5-percent deposit is a manageable amount.
Keep in mind that when borrowing more than 90 percent of the property price, lenders might offer slightly higher interest rates, say plus 0.01 to 0.05 percent.
If you’re in the market for a no deposit home loan, it’s crucial to understand how such loans work and their requirements.
If you use a guarantor, make sure that they have a good credit history. Reputable lenders are likely to reject guarantors with a poor credit score. You should also be familiar with the risks of taking a guarantor loan.
In most cases, you’ll find low deposit loans, and be sure to compare your options before picking one.