Most lenders have moved away from the no-deposit home loan, although there are a few products available with very strict criteria. Excluding the no-deposit opportunities made available to the medial industry and other high-income and lower-risk professional groups, you should demonstrate a near-perfect credit record and very stable employment history. As we’ll come to describe, the Guarantor option tends to be one that makes entry to the property market a relatively easy process, even if your own credit record is a little questionable.
A low deposit loan can potentially allow you to borrow up to 95% of the purchase price of a property. With a bank loaning you nearly all of the cost of your future home, you might only be required to pay around 5% up front.
There’s no one-size-fits-all approach when it comes to no-or-low deposit home loans. Bigger banks usually have stricter conditions and lower rates, while there are other lenders that may increase the risk threshold but charge a higher rate, thus increasing your monthly and longer-term obligations. However, when you have a little equity in your home, and as your situation matures, you may be able to break free of the more restrictive product into one that provides a little more flexibility.
Keep in mind that with no-deposit and low-deposit home loans you may need to contribute the LMI and Stamp Duty.
No Deposit Opportunities
If you don’t have the cash to put down a deposit and don’t want to apply for a no deposit home loan, you may still be able to explore a few other alternate routes, such as:
One-off Financial Gift
If your family members are able and willing they could provide a cash gift to increase your deposit. However, the criteria for each lender varies enormously.
Existing Equity
Existing equity in your own home is usually acceptable in lieu of a deposit. You’re using your existing property as security and essentially guaranteeing yourself. In fact, if you roll your existing property as security and refinance that loan you’ll likely qualify for a cash-back from a number of lenders.
First Home Owners Grants
The First Home Loan Deposit Scheme is a nationwide Federal Government program designed to help first home buyers purchase a property with a deposit as low as 5% without having to pay expensive Lenders Mortgage Insurance. The FHLDS New Home Guarantee scheme has been extended a number of times, with the latest extension making the program available until 30th June 2022.
Personal Loan
You could use a personal loan as a home deposit, although the method limits your borrowing capacity (since you’re no paying off an additional loan), so it is generally frowned upon. Various limits apply to this borrowing conditions, such as:
- You need a minimum deposit of 5% of the property value.
- You need a very high income.
- You can borrow up to 95% of the purchase price plus the personal loan.
You may generally not have more than $10,000 debt and you should have a clear credit history.
The personal loan option isn’t one that we’d recommend; instead, you should consider a Guarantor loan that permits up to 100% borrowing with no LMI.
First Home Super Saver Scheme (FHSSS)
Through the First Home Super Saver Scheme (FHSSS), first-home buyers may be able to use Australia’s superannuation system as a tax-effective way to save for part of their home deposit. If you’re an eligible first home buyer, aged 18 or over, you can withdraw voluntary super contributions (which you’ve made since 1 July 2017) to put toward a home deposit. Due to the favourable tax treatment, generally available through super, the FHSSS intends to help first home buyers to grow their deposit more quickly, while potentially reducing the tax they pay.
The FHSSS can release up to $50,000 for the purchase of a qualifying home. You can learn more about the FHSSS on our FHSSS FAQ.
Self-Managed Super Loans
In certain cases you may be able to use your Self-Manager Super Fund to purchase property. However this type of borrowing is usually more suitable for property investors that don’t intend to occupy the property. There’s a lot of red-tape, rules, and regulations wrapped around the opportunity so you’re always best to consult with a planning professional before considering this route.
We’ve got a basic SMSF FAQ for this type of loan that has a large amount of living information sourced from Government resources.
Consider the Guarantor Loan
In our continued experience we tend to see the Guarantor Loan as the most suitable option for the majority of borrowers, although you’ll still have to satisfy certain criteria, including 5% genuine savings. Talk to us to learn more.
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