Low Deposit Home Loans

Unlock the possibility of owning your home sooner with a deposit as low as 2% of the property value. Learn how low-deposit home loans can make it happen.

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Updated: 13 Nov, 2024

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Low-deposit home loans are crafted to help you step into homeownership sooner, with the opportunity to buy a home with as little as 2% down. This puts the power of owning your own home in your hands.

Let’s explore how a low-deposit home loan can help you secure your property sooner.

How Do Low-Deposit Loans Work?

With a lower deposit, borrowers typically have a higher Loan-to-Value Ratio (LVR). As a result, lenders may require Lenders Mortgage Insurance (LMI) to protect themselves in the event of borrower default.

Once approved for a low-deposit home loan, you'll benefit from interest rates similar to those offered to borrowers with a 20% deposit. This means that despite a smaller deposit, you won’t face higher interest rates as a penalty.

A bad credit history, including adverse listings such as defaults, bankruptcy, judgments, court writs, or numerous credit inquiries, may raise concerns but doesn’t automatically disqualify you from securing a home loan.

Details

Low-Deposit Home Loan

Traditional Home Loan

Required Deposit

20%

Lenders Mortgage Insurance (LMI)

Yes

Time To Home ownership

Quicker entry into the property market

Longer savings period required

How Large A Deposit Do I Need?

You may need a minimum of 5% of the property value, which is the standard requirement for most lenders. However, we work with lenders who allow you to borrow more than 90% of the property value, so you can still qualify for a home loan even if you have:

3% Deposit

5% Deposit

10% Deposit

15% Deposit

Government Help For Low-Deposit Borrowers

In addition to low-deposit home loan options from lenders, there are various federal government schemes and grants available to help you purchase your home sooner.

The Home Guarantee Scheme involves a guarantor scheme where the government guarantees loans so eligible home buyers avoid paying Lenders Mortgage Insurance (LMI), even with a deposit as low as 2% of the property value. There are three different schemes as part of the Home Guarantee Scheme:

First Home Guarantee

Regional First Home Buyer Guarantee

Family Home Guarantee

The Help to Buy Scheme is a shared-equity scheme wherein the government helps first-home buyers purchase a home by contributing up to 40% of the property price for a new home and up to 30% for an existing one.

Give us a call on 0862430351 or fill in our free online enquiry form to find out if we can help you get you approved.

How Do I Qualify?

While most lenders have strict criteria for borrowers with small deposits, if you can meet the following requirements, you’ll have a strong chance of approval, even with a deposit as low as 3%.

A good income: The lender will consider your income carefully because it forms the basis of their assessment of your capacity to make mortgage repayments, otherwise known as your serviceability.

Loan purpose: If you need the home loan for any other reason than to purchase, refinance or build an owner occupied or investment property, such as debt consolidation, then this may be considered depending on the strength of your application.

Property: Check out this accurate list of restrictions on property types and locations for a low deposit home loan, such as mining towns, high rise units and display homes.

Clean credit file: There should be no bad marks in your credit history such as late payments on personal loans, credit cards or rent. However, some lenders are less strict if you have at least 10% or more as a deposit.

Genuine savings usually required: No matter the size of your deposit, most banks will not even consider your low-deposit home loan application unless you have at least 5% of the purchase price in savings that you’ve accumulated over a period of at least three months. The great news is that this so-called “genuine savings” rule isn’t a requirement for all lenders if you can meet certain criteria.

Reasonable asset position: Your age and income should reflect a relatively high level of assets such as you owning a car, jewelry, having savings, and so on.

Reliable, long term job: Lenders generally like to see that you’re working full-time (although there are exceptions to this) with an employment history of at least five months in your current role or two years in the same line of work.

Low level of debt: Although you’ll need a good credit file, the general rule for borrowing at a high LVR is ensuring that any unsecured you have, such as a personal loan or a credit card, doesn’t exceed more than 5% of the purchase price of the property. Depending on the lender and your deposit though, showing a history of perfect repayments on these debts can work in your favour.

Obviously, the bigger your deposit, the more our mortgage brokers can leverage when negotiating an approval. On top of that, you’ll have a greater number of lenders available to you.

Can I Get An Interest Rate Discount?

Did you know we have an exclusive offer from one of our lenders for borrowers with a 10% deposit?

You can receive a discount of 1.20% to 2.37% on all loans over $500,000. Conditions apply, so be sure to check the details on the 90% home loan page.

Great news for those with a 5% deposit—you can access the same deal! As with all offers, there are specific requirements, so take a look at the 95% home loan page.

If you’re working with a deposit of 3% or less, our brokers will focus primarily on getting you approved, with less room for negotiating on terms.

A 15% deposit or more gives our mortgage brokers significant negotiating power to secure better terms for you.

Find out if you qualify for an interest rate discount by completing our free assessment form.

Choosing The Right Lender Matters

The lender you choose can greatly impact your application, and it can also determine whether you secure a fantastic deal or simply accept whatever the bank offers as a low-deposit borrower.

There can be significant differences in what banks provide, including interest rates, discounts, waived LMI, and other terms.

A mortgage broker with expertise in credit and established relationships with multiple lenders can give you the negotiating power needed to maximize the value of your mortgage.

Apply For A Low-Deposit Home Loan Today!

Speak with one of our low doc home loan specialists by calling 0862430351 or by completing our free assessment form today!

FAQs: Low-Deposit Home Loans

Do I Need Genuine Savings?

Genuine savings is a requirement that most lenders have but what is it exactly?

Well, in most cases, you’ll need to have more than 5% of the property value to qualify for a mortgage and it must be in the following forms:

Regular deposits into a savings account over a 3 month period.

Term deposits held for 3 months.

Shares or managed funds held for 3 months.

Some lenders will accept equity in another property.

In some cases, you can use rent as genuine savings.

Despite this, it really depends on how big your deposit is. As a rough guide:

15-19% deposit: Genuine savings isn’t required by most lenders.

10-15% deposit: Most lenders require genuine savings.

3-5% deposit: Almost all lenders require genuine savings.

How Does A 3% Deposit Home Loan Work?

A 3% or 97% home loan allows you to borrow up to 95% of the property value plus the cost of Lenders Mortgage Insurance (LMI), a one off fee charged when borrowing more than 80%.

LMI roughly works out to be around 2% of the total property value but to get a more accurate figure, use this easy LMI calculator.

By adding or “capitalising” this amount to your home loan, you can actually avoid paying thousands of dollars in LMI upfront and it pay it off with your mortgage repayments at no interest.

Are There No-Deposit Home Loans?

Yes, there are. If your parents own property in Australia, then a guarantor home loan might be the best no-deposit home loan option. With a guarantor home loan:

You don’t need any savings

You can borrow 100% plus some more money to cover the cost of stamp duty and or other costs associated with buying a home.

You save thousands of dollars in LMI.

Am I Better Off Saving A Bigger Deposit?

It’s a good question to ask and one that many would-be borrowers carefully consider.

Granted, with a 20% deposit you can avoid LMI completely and you have much more negotiating power in getting a great deal on your home loan.

However, the longer you spend trying to save, the more property prices will increase. Unless you can put away huge amounts every pay day, for ordinary Australians, it’s like chasing your own tail: you don’t get anywhere.

There are low-deposit home loans available! It wouldn’t hurt to speak with a mortgage broker about which solution would work best for you so you can bite the bullet and get into the property market sooner, rather than later.

Why Is It Important To Compare LMI Premiums?

When comparing mortgages from different lenders, most people just compare interest rates and maybe what kind of features might help them better manage their home loan.

What most borrowers don’t compare are LMI premium rates and it’s not from laziness. The reason is actually ignorance because, the fact is, lenders don’t advertise these rates to the public!

Apart from differences in the rates themselves, each lender also has different loan brackets and rates actually differ depending on whether you’re providing full documents for your home loan application or you need a low-doc home loan.

Despite the differences, the more you borrow, the more your LMI premium will increase. Check out the LMI rates table and try the LMI calculator to get an idea of the lowest premium you may qualify for with one of the lenders on our panel.

Do I Get All Of The Same Features With A Low Deposit Home Loan?

In most cases, you’ll enjoy the same home loan features as someone with an 80% LVR home loan.

This includes features like a 100% offset, fixed interest rates, basic loans and professional packages.

How Do I Work Out My LVR?

Your LVR is the amount that you’re borrowing represented as a percentage of the value of the property that you’re purchasing. For example, if you borrow $570,000 to purchase a property valued at $600,000, the LVR of your home loan would be 95%. You can work out your LVR with this calculator but the important thing to remember is that with most banks, borrowing more than 80% LVR is considered a high risk.

Are Low-Deposit Home Loans Worth It?

Let’s go through the pros and cons of low-deposit home loans to find out if they are worth it.

The pros are:

You enter the property market sooner instead of waiting for years to save for a deposit.

You escape the rent cycle and transform from being a renter to a homeowner.

There are a range of low-deposit home loan options that suit your financial situation. You can choose the loan terms and repayment schedules that align with your future goals.

The earlier you enter the property market, the more time your investment has to grow. If the value of your property appreciates, you can access your equity.

Contrary to common misconceptions, low-deposit home loans can come with competitive interest rates. Lenders understand the demand for these loans and offer attractive rates to make homeownership more affordable.

The cons are:

When you borrow with a low deposit, you often need to pay Lenders Mortgage Insurance. This additional cost can add thousands to your upfront expenses.

A low deposit means you'll have a higher Loan-to-Value Ratio (LVR). Some lenders might impose restrictions or have fewer loan options for borrowers with higher LVRs.

With a smaller deposit, you'll have less equity in your property initially. This could limit your options if you want to access equity for things like renovations or investments in the future.

If the property market experiences a downturn, homes bought with lower deposits could be more susceptible to negative equity, where the property's value is less than the remaining loan amount.

Lenders might have stricter criteria for low-deposit loans, including more thorough assessments of your financial stability and creditworthiness.

Will I Always Be Charged A Higher Interest Rate?

No, not always.

Although the size of your deposit does have some impact on the interest rate you may be eligible for, it really comes down to your overall situation.

For example, if you only have a 5% deposit but you have a stable job, enjoy a good income and have a good asset position, then this can work in your favour when your mortgage broker is negotiating your deal.

Still need answers? We're here to help!

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