The real estate market in Australia has been experiencing a boom for past few years. More and more people are taking out a home loan to buy a house instead of living in a rental property. People prefer to make mortgage repayments instead of paying rent because, at the end of it, they will have the ownership of the property.
When buying a house, they all want to know whether it is possible to buy a house without any deposit money or not. And the answer is, yes, you can! It may be hard to buy a house without a deposit if you are living somewhere else, but in Australia, you can get loan approval for 100 percent of the property price. However, you have to meet the defined criteria for an approval, such as having a guarantor on the loan, and this usually varies on a case to case basis.
Getting 100 Percent Loan to Value Ratio (LVR)
In addition to that, it is important to note that buying a house without a deposit is an option for some but can possibly be a trap for others. There are so many lenders in Australia who don’t provide 100 percent LVR (a house loan to buy a property without a deposit). But there are some lenders who offer LVR of 95 percent provided if you meet their defined criteria and have a reliable source of income. However, you still have to save at least a 5 percent deposit in this case.
Even if a person does not have to pay a deposit on a loan, there are various upfront costs he or she has to consider, including building inspection cost, solicitor’s fee, stamp duty, etc.
Therefore, regardless of whether you get the no deposit home loan or not, you still have to bear the additional cost of buying a house. Moreover, it may be a wise decision for some, but can turn out to be a hard one and costly for others.
Lending Criteria for No Deposit Home Loans
When you apply for no deposit home loan, lenders apply very strict criteria for its approval. Below are the key requirements a person has to fulfil if they wish to get approval for the loan:
- Good Credit – In order to qualify for a no deposit home loan, it’s important to take responsibility for your debts right from the beginning. Maintain a good credit history, because lenders are very strict about this requirement in Australia and they are liable to lend responsibly.
- Well-maintained Repayment History – Do not delay any of your debt repayments. Make all the debt payments on time, including personal loans, rents, and credit cards.
- Stable Income Source – This is another variable that completes the equation when it comes to getting a no deposit home loan. A person must have a strong and ongoing source of income that allows him or her to repay the debt on time. In Australia, professionals in the field of medicine, accounting or law are known to have stable employment, and therefore, they have very high chances of getting approval for no deposit home loan.
- Common Location and Property Type – To get a loan approval without a deposit, you may have to buy a standard type of house. In addition to that, almost every lender wants the borrower to purchase a property in a major regional area, town, or a capital city.
How to Purchase a Property with No Deposit?
In certain situations, it is possible to buy a house without a deposit, but the majority of the borrowers will not be able to do that. The main situation where you can purchase a property without a deposit is when you have a guarantor that will co-sign the loan agreement. It can be your parents or any other family members. Your friends can also sign the agreement as a guarantor and this allows borrowers to get a loan with 100 percent LVR.
Avoid or Not to Avoid?
It is important to know whether you should avoid getting a no deposit loan or should apply for it. Some of the reasons why you should avoid getting no deposit loan are as follows:
- Higher interest rate
- Liability to pay lender’s mortgage insurance
- The approval process is complicated
However, if you are willing to bear the additional cost related to the loan and completely aware of the challenges, you can certainly plan to buy a house with no deposit.