This is the ultimate guide to getting a home loan with NO DEPOSIT.
So if you want:
To buy your home quicker.
With no deposit.
Then you’ll love the actionable no deposit tips in this guide.
Let’s dive right in.
Can I get a home loan with no deposit?
If you want to be able to buy a home with no deposit you can do this with THREE simple methods:
- ✅ 1. Using the First Home Owners Grant
- ✅ 2. Getting the help of a Guarantor and borrow the entire purchase price
- ✅ 3. Being gifted the deposit from friends or family
Banks in Australia offer up to 95% loan to value (LVR) loans, meaning you are going to need at least a 5% deposit if you are using the First Home Owners Grant, or being gifted the deposit from friends or family.
(We recommend 8-10% of the purchase to cover stamp duty and other costs)
If you get the help of a guarantor you can purchase a home and borrow the entire purchase price…
Read More: How to borrow 105% of your first home
What is a guarantor 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.
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.
The guarantor will use their property as security however the value of the security needs to 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.
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 about 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).
In many cases, investors and homeowners usually are eligible for lower interest too. Another benefit is that the loan to value ratio borrowed can be up to 105% to help cover stamp duty and conveyancing costs.
You can avoid expensive lenders mortgage insurance (LMI)
The other added benefit of a parental, or family guarantee loan is you avoid expensive costs like lenders mortgage insurance because the bank is taking a second property from your parents as security for your mortgage.
Read More: See how much you’d save in LMI
You qualify for a lower interest rate
The benefit of this structure means that you can still qualify for a lower ongoing interest rate as the additional security offered by your parents means that you are a lower risk to the bank compared to someone say that is borrowing 95% of the property value.
Realistically if your job history, income and credit score are all acceptable to the bank you could be an ideal borrower to the bank!
Longer term with a guarantor loan
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 depending on how your property value is going, and also how much of your loan you have paid down. A benefit is that the guarantor only remains until the borrower has paid a certain loan amount. Generally, this is about 20% of the loan.
Can I use the first home owners grant as a deposit?
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 – but can you use this first home owner grant as a deposit? Yes, you can!
What is required for a no deposit home loan?
The lending criteria around 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 look at reaching out to the businesses that have given you the default and see if it can be lifted. Lenders are very strict about this requirement in Australia and they are liable to 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 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.
You could also use gifted funds to buy a property with no deposit…
How do gifted funds work?
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!
But…There are a few things that the banks look at when allowing a gift.
Are there any catches with gifted funds?
There are a few catches you need to watch out for when it comes to gifted funds.
One is that they might want to see your rental history – to make sure that you have a history of making regular repayments on time. Also, it always helps if you have a little of your own savings which can be used towards the purchase known as genuine savings.
What about 5% deposit?
You will be able to get a home loan with only 5% deposit however the terms will differ between lenders. If you only have 5% deposit this needs to comprise as genuine savings (this 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).
What are some other ways I can save for a home loan?
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 however the first is to 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 that you are, and 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, to get rid of them.
Is it better to wait and save for a deposit or to take the no deposit route?
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 on your loan which could be an issue if the property market drops.
It really depends on your personal circumstances which is why we recommend speaking to our team at Hunter Galloway for a personal review.
What are the differences between loan features for no deposit 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
Do I have to pay LMI on a no deposit loan?
There’s a choice of loan options that will actually allow you to borrow 100% of the value and avoid LMI, however it really depends on the guarantor.
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.
What documentation will I need to apply?
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. Speak to Hunter Galloway about this in detail and get a free assessment with us today to find out about your personal situation.
What we do is make it simple to get through the home loan process, and with our team of experts, we will help walk you through the process to complete your first home buyers grant application. If you are buying or refinancing your home we can help walk you through the process.
Our service does not cost you anything as we are paid by the lender when your home loan settles.
To chat about your deposit, lending and investment lending options book in a time to sit down with us, or feel free to call on 1300 088 065.
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.
Ready to take the next step toward buying? We’re happy to help. Schedule a call today with a Home Loan Expert from Hunter Galloway, the home of home buyers.