Can I get a home loan with no deposit?

There’s more to it than you think
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Do you want to buy a home but you have not been able to save up for a deposit due to a number of reasons? Don’t throw away your dream of owning a home just yet…

In this guide we are going to tell you some tips to getting a home loan with NO DEPOSIT.

Let’s dive right in.

1. Guarantor loan

This is the best and most recommended way to get a no deposit loan. A guarantor is someone with an existing property, who is willing to take on the legal responsibility, should the borrower not be able to make their loan repayments. A guarantor home loan allows you to lend up to 105% of the property that you’re purchasing.

It also means that you don’t need a deposit. The way it works is, 80% of the purchase price on the purchasing property would be in the owner’s name. In other words, the bank will put an 80% loan against the property you are buying. So, then what happens to the other 20% or 25% leftover? The remainder goes on to the guarantor’s property.

Most people who decide to take out this loan structure opt to use their parents as a guarantor in order to have access to a higher loan amount. So mum and dad’s property would have a second mortgage registered on their property there.

The guarantor will use their property as security. However the value of the security needs to be big enough so that their current loan’s LVR is 80% or lower. This means that the guarantor needs to have enough equity in their property in order to use it as security in case you cannot meet your repayments under the contract.
It is, therefore, important for your guarantor to get legal and financial advice to make sure this is something that is suitable to them because, in a worst-case scenario, the guarantor’s property could be at risk in a foreclosure situation. So, do get that advice and make sure it is suitable

Please call our team on 1300 088 065 (or +61410000689 if you’re overseas) or fill out our online assessment and one of our Mortgage Brokers will give you a call to discuss your Home Loan options.

What are some of the benefits of a guarantor loan for borrowers?

  • One of the main benefits of having a guarantor is that you’ll be able to get a home loan without a deposit and be able to waive Lenders Mortgage Insurance (LMI) because the bank is taking a second property from your parents as security for your mortgage.
  • The benefit of this structure means that you can still qualify for a lower ongoing interest rate. The additional security offered by your parents means that you are a lower risk to the bank, compared to someone that is borrowing 95% of the property value. So, if your job history, income and credit score are all acceptable to the bank you could be an ideal borrower to the bank!
  • Another benefit is that the loan to value ratio borrowed can be up to 105% to help cover stamp duty and conveyancing costs.
  • The guarantor only remains until the borrower has paid a certain loan amount. Generally, this is about 20% of the loan.

guarantor home loans

Really the only downside is that a family guarantee loan is mostly a short-term strategy, as you ultimately want to remove your parent’s property from your loan within 2 to 5 years of buying your new home. It comes down to how your property value is going, and also how much of your loan you have paid down.

Read More: See how much you’d save in LMI


2. First Home Owners Grant

In some states you may qualify for the first home owners grant (FHOG) which means you might be able to access up to $15,000 towards your new home.

If you are in Queensland and you signed a contract to buy a brand new home, or build a new house between 1 July 2016 and 30 July 2018 you are eligible for $20,000. However, if you signed the contract to build or buy after 1 July 2018 you are eligible for $15,000.


The great part about the First Home Buyers Grant is that you can start building your property portfolio, quicker!

In New South Wales, if you are a first home buyer and are buying a newly built house, the government can give you $10,000. But the house has to be worth $750,000 or less. In Victoria, if the home is worth $750,000 or less, you can get up to $10,000 and if the home is in regional Victoria, you can get up to $20,000.

Many lenders are willing to consider these grants as a deposit which means you are essentially buying your home without having to save up for a deposit.

The First Home Owners Grant differs from state to state, so find out what the eligibility requirements for your state are. With this grant, you can only buy a residential property and you have to move into the home within a year and then live there for 6-12 months.

But can you use this first home owner grant as a deposit? Yes, you can!

Banks in Australia offer up to 95% loan to value ratio (LVR) loans, meaning you are going to need at least a 5% deposit if you are using the First Home Owners Grant.

Read More: Take the First Home Owners Grant eligibility Test


3. First Home Loan Deposit Scheme

This scheme allows you to buy a home with a 5% deposit without having to pay Lenders Mortgage Insurance. This is because the government acts as a guarantor to secure the remaining deposit to get you to 20%.

However there are some things to consider with this scheme:

  • Some lenders want you to have at least a 5% deposit as genuine savings. Although this is not a zero deposit, it is definitely lower than a 20% deposit.
  • Only 10,000 home buyers a year are chosen — it’s run as some sort of a lottery, so your chances of getting it are very low. However, at Hunter Galloway, a few of our clients have managed to get the grant.
  • If you are single, you have to be earning no more than $125,000 and if you are a couple your total income should not be more than $200,000 a year.
  • You cannot use it to buy an investment property—you have to live in the property.
  • The scheme is only open to Australian citizens. So, if you are a permanent resident then unfortunately you do not qualify for the First Home Loan Deposit Scheme.


4. Gifted funds

The banks generally require an 8% to 10% deposit. So, if your parents are happy to give you a cash gift for this deposit amount it would be enough to help you get into your first home!

gifted funds

Gifted funds can help with your deposit.

Sometimes, depending on the gift amount, the person gifting you the deposit can sign a form that says it’s non-refundable and that they’re giving you the gift forever.

But…There are a few things that the banks look at when allowing a gift.

  • They might want to see your rental history to make sure that you have a history of making regular repayments on time.
  • It always helps if you have a little of your own savings which can be used towards the purchase. These are known as genuine savings.


5. Equity

This one doesn’t really apply if you’re a first home buyer but it still applies if you’ve got an existing home. You can use equity in an existing property and you won’t need a deposit.

This is the fastest way to borrow more money because saving takes time. For example, a property that you purchased three years ago that has increased by $300,000—that can be used as equity to purchase the next property.

gifted funds

Equity allows you to expand your portfolio faster.

It’s a great way to be able to expand your portfolio faster and without having to save the deposit. The only thing you need to look out for is getting into too much debt. So just make sure you do your cash flow; make sure you do your modeling to ensure that you can afford it, because then you are potentially borrowing 100% on the new property and you’re not putting a deposit in, so your repayment is going to be much higher.


6. Owner’s finance

With owner’s finance, you actually owe the seller and not the bank. Normally,if you are buying a home through the bank, the bank gives the seller $500,000 and then you pay the bank back over time—usually 30-40 years.

But in the case of owner’s finance, you owe the seller not the bank. So you can agree with the seller that you are going to pay them for the property over a certain number of years. In this case, even though you technically own the property, the seller will keep the title deeds. Once you have finished paying them for the property, you can get the title deed.

gifted funds

With owner’s finance, you still have control over the home and can renovate it

Although it is very rare to find sellers who would agree to this, it is not impossible. However, with owner’s finance, you can’t really take 30 years to pay it back. So bear in mind that your repayments will be way higher than a regular loan. But it all depends on what you and the seller agree on.

With owner’s finance you will still have control of the property—you can live in it or you can rent it out if you want. You can even renovate it. So just remember that with owner’s finance, you don’t owe the bank but you owe the original owner of the property and you can buy the home with no deposit.


7. Partnering with someone

You can partner with someone and come up with an arrangement that works for the both of you – this is called a joint venture. For example, they can put up the deposit and you can do the repayments for a period until you have ‘paid back’ the deposit and then you can start sharing the repayments.

For example, if you need a $50,000 deposit and your partner pays it upfront, and your repayments are $2000—then you can do the repayment of $2,000 until you get to $50,000.

After that you and your joint venture partner can start paying $1,000 each towards the loan repayment. There are so many different arrangements you can make- another example is, your partner can put down the $50,000 deposit and if you are a handyman, you can do $50,000 worth of renovations on the property. So, yes, a joint venture is another way you can buy a home without a deposit.


8. A property syndicate

If you add a couple more people to the joint venture it becomes a property syndicate. Or you can just join a syndicate that’s already there. That way, you would need to invest very little on your part and it might help you buy without a deposit. But be very careful about joint ventures and syndicates as there is potential of being cheated. Make sure you do your due diligence and find out everything about the syndicate you are joining. Also make sure to get a lawyer or conveyancer to take a look at your contracts before signing.


9. Property Option

Basically what you do is you go to the seller and give them a payment of between 1-30% of the value of the property as an option fee. This gives you the option to buy the property from the seller at a later date for an agreed upon price. If the value of the property increases then you can buy the property at the set price but still be able to get full finance for it because the value has increased.

However, if you fail to eventually buy the property then you lose the option fee. This method usually works if the option period is very short and you are offering a very high amount. In this case you may be able to get away with offering less than 1% of the property value.

The property option route is really ideal if you are a seasoned property investor.


Bonus: can I use a personal loan as a deposit?

There are many websites and videos out there that are still encouraging people to get personal loans and use that as a deposit.

What’s the problem with getting a personal loan and using it for a deposit? Well, these days the banks are now more diligent and they will do their research to find out how you got your deposit. Once they find out you got your deposit from another loan, then you can be certain they will deny your home loan application.

Also, personal loans can reduce your borrowing capacity by hundreds of thousands of dollars. Yes, that’s right—making a payment of just $500 or $1000 a month towards a personal loan can reduce your borrowing capacity by hundreds of thousands of dollars.

So, no matter how persuasive the video telling you to get a personal loan is, just don’t do it.


Bonus: What is required for a no deposit home loan?

The lending criteria for a no deposit home loan can be really strict, so it’s important to pay attention to key lending requirements to get it approved.

  • Good Credit. In order to qualify for a no deposit home loan, it’s important to take responsibility for your debt right from the beginning. Maintain good credit history, or reach out to the businesses that have given you a default and see if it can be lifted. Lenders are very strict about this requirement in Australia and they are liable if they don’t lend responsibly.
  • Well-maintained repayment history. Lenders will be looking to see if you have delayed any of your debt repayments. This includes 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. The applicant should 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 loans.
  • 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.

To help your application get through in the quickest time frame possible, you’ll need to bring supporting documents like bank statements, payslips and identification.


Bonus: What if I have a 5% deposit?

You will be able to get a home loan with only a 5% deposit. However the terms will differ between lenders. If you only have a 5% deposit this needs to be genuine savings, which means that it’s not just money from your sister selling her car or money you’ve borrowed off your Aunt, as this is considered a gift.

Read More: Genuine savings

Read More: Try the deposit calculator to see how much you could get with your savings


Bonus: What are some other ways I can save for a home loan?

  • First of all consolidate any debt that you have.This includes credit cards, personal loans, or even Afterpay. The more debt you have, the higher risk as a customer you are. Be aware that even if you don’t actually have any money owing on your credit card, the percentage of your credit limit will still be considered as debt. This means that if you have any credit cards that aren’t in use, get rid of them.
    no deposit
  • Once all your debts are paid, you can implement the 50/25/25 Budget Rule. This is where 50% of your income is spent on essential living expenses, 25% is spent on lifestyle spending and the remaining 25% is spent on savings.
  • Track your goal by using technology to automate your savings. Set up monthly direct debits from your pay into a separate savings account. This will allow for the out of sight, out of mind mentality to enable you to generate your savings.

At Hunter Galloway, we’re all about budgeting and we can tell you about all of the different ways to save for a home loan.

Read More: Find out the steps in buying your first home using The Home Buyers Hub


Bonus: what are some things to consider with a “no deposit” loan?

Here are a few things you should consider if you want to go the “no deposit” route:

  • No deposit doesn’t mean no upfront costs, You may still need to have money aside to pay for things like bank fees, legal costs and building and pest reports.
  • The bank applies stricter lending criteria for no deposit loans.
  • In some states, no deposit loans are only available in capital cities and major regional centers.
  • With a no deposit loan, you are essentially borrowing 100% of the property value so be prepared that your repayments may be higher.
  • Some lenders evern charge higher interest rates for some no deposit loans. But this differs from lender to lender.
  • If you want to build a property portfolio then try not to get too many no-deposit loans because you may run the risk of overextending yourself. If you want to build an investment portfolio then take a look at our rentvesting strategy to own 3 properties in 3 years. The link is in the description.
  • Finally, remember that a deposit is only one aspect the bank looks at when evaluating your loan application. They also look at your income, expenses and credit file to make sure you will be able to pay back the loan. These are just as important as having a deposit.

Generally speaking, a guarantor loan will mean that you’ll have a better financial outcome and it means that you won’t need to save for a deposit and spend time waiting. However, if getting a guarantor isn’t an option then consider a low deposit loan and aim for a 95% loan.

On the other hand, depending on the property market, saving a deposit is more stable and means that another person doesn’t need to take responsibility for your loan, which could be an issue if the property market drops.

If you are aiming for the First Home Loan Deposit Scheme, then you should bear in mind that the scheme is run as a bit of a lottery and applying for the scheme doesn’t mean you’re guaranteed a spot. You might be lucky and get a place, you might not. So in order to cover your bases and avoid missing out on your home, we still recommend starting saving an 8% deposit

Whether or not you should save for a deposit really depends on your personal circumstances, which is why we recommend speaking to our team at Hunter Galloway for a personal review.


Bonus: Differences between loan features for no deposit loans and regular loans?

In most cases, you’ll have access to the same features as other home loans. This includes flexible payment packages and waived fees. Often the interest rates are pretty low. However the most important part is finding a lender that is happy to do a no deposit loan, as sometimes this can be the difficult part.

Read More: How to find the best home loan in Brisbane


Bonus: Do I have to pay LMI on a no deposit loan?

If you do save a deposit then depending on your profession this will influence if you pay LMI or not. You could still be eligible for waived LMI with a 90% loan and 10% deposit, and of course, you wouldn’t need a guarantor in this case.

Speak to us about this and get a free assessment today to find out about your personal situation.

Mortgage Broker Brisbane
At Hunter Galloway, we make it simple to get through the home loan process,by walking you through it step by step. Whether you are buying or refinancing your home, we are here to help.

Our service does not cost you anything as we are paid by the lender when your home loan settles. So, give us a call on 1300 088 065 or book a free assessment online to see how we can help.

The information on this page is general in nature and should not be considered as advice. Before you act on this information you must seek independent legal and financial advice.

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