Low Deposit Home Loans
Low-deposit home loans offer an exciting opportunity to become a homeowner faster than you might have imagined. With deposits as low as 2% of the property's value, these loans allow you to purchase your home sooner and experience the benefits of homeownership. Let's explore how you can secure your property with a low-deposit home loan.
How Do Low-Deposit Loans Work?
Low-deposit home loans are designed for borrowers who are able to contribute a smaller deposit, resulting in a higher Loan-To-Value Ratio (LVR). In simple terms, the LVR is the ratio of the loan amount to the property value. As you provide a smaller deposit, the LVR increases, which can make lenders more cautious. To mitigate this risk, lenders often require borrowers to pay Lenders Mortgage Insurance (LMI). LMI is a form of insurance that protects the lender if the borrower defaults on the loan.
One of the major benefits of low-deposit loans is that you can often access competitive interest rates, similar to borrowers with a larger 20% deposit. This means that, even though you're borrowing a higher percentage of the property's value, you won’t be penalised with a higher interest rate.
While a minimum 5% deposit is typically sufficient to secure a loan, it's important to note that additional funds may be required to cover costs such as stamp duty, legal fees, and Lenders Mortgage Insurance. Additionally, a strong credit history and good credit score can increase your eligibility for a low-deposit loan and help secure better loan conditions.
With a low-deposit loan, you're one step closer to owning your dream home!
Smart Strategies and Low-Deposit Loan Options
Becoming a homeowner doesn't have to feel like a distant dream. By leveraging a few smart strategies and financial support, you can buy your first home sooner than you think. Here are some effective low-deposit home loan options for you to secure your first property with minimal delay:
1. First Home Guarantee: A Path to Homeownership with a Low Deposit
The First Home Guarantee is a great opportunity for eligible first-home buyers to purchase a property with as little as a 5% deposit without the burden of paying Lenders Mortgage Insurance (LMI). Here's a breakdown of how this nationwide program works:
Eligibility for the First Home Guarantee
-
Deposit: A minimum deposit of at least 5% is required, and the deposit must typically be from genuine savings.
-
Income Limits:
-
Singles earning up to $125,000 annually.
-
Couples earning up to $200,000 annually (now includes family members or friends living together).
-
-
Applicants: An individual either alone or with a spouse or partner. Single parents with at least one dependent child, as well as legal guardians (aunts, uncles, grandparents) can also apply.
-
Residency: Applicants must be Australian citizens or permanent residents.
-
Property Use: The scheme is for owner-occupiers — you must intend to live in the property as your principal place of residence.
With 35,000 places available from 1 July 2024 to 30 June 2025, this scheme offers significant support to first-home buyers by reducing upfront costs and allowing them to bypass LMI
2. Gifted Deposit Home Loan: A Helping Hand from Family
If you have supportive parents, they can gift you a deposit without any strings attached. Here's what you need to know:
-
Deposit Amount: Parents can gift between 5% and 15% of the property value.
-
Lender Considerations: Many lenders will accept a gifted deposit, and some won’t require you to have genuine savings.
-
Statistics: About 60% of first-home buyers receive financial help from their parents. This is an excellent option if you don’t have the savings but still want to get into the property market.
3. Personal Loan as a Deposit: A Borrowed Solution
Another option is using a personal loan to cover your home deposit. However, this comes with its own considerations:
-
Minimum Deposit: You’ll need at least 5% of the property value as a deposit.
-
Eligibility: You must have a high income to afford both the personal loan and the home loan repayments.
-
Risks: Lenders are cautious about this option since you’ll be managing both a home loan and a personal loan. It’s important to speak with a mortgage broker before pursuing this route, as some lenders may not accept it, or you might need to consider other solutions like a guarantor loan.
4. Guarantor Loan: A Path to Homeownership with Family Support
A guarantor loan is a popular option for first-home buyers or borrowers with limited savings or a less-than-ideal credit history. It allows someone (usually a family member, such as a parent) to guarantee part of your loan, enabling you to secure a home loan with a smaller deposit or better loan terms.
-
Lower Deposit: A guarantor loan can enable you to borrow more of the property's value (up to 100% or more), potentially eliminating the need for a large deposit.
-
Avoid LMI: In most cases, you can avoid paying LMI, which is typically required with high Loan-to-Value Ratio (LVR) loans.
-
Faster Homeownership: With a guarantor loan, you can buy your first home sooner, which is especially useful if you're struggling to save a large deposit.
5. Shared-Equity Schemes: A Joint Investment in Property
Shared-equity schemes allow you to buy a property with a lower deposit by partnering with a government or private entity. Here’s how they work:
-
Government Support: Under the Shared-Equity Scheme, the government can contribute:
-
40% for new builds.
-
30% for existing homes.
-
-
Deposit: Typically, you will still need at least a 5% deposit.
-
State Schemes: Other state and territory-wide shared-equity options are available. Shared-equity schemes provide a great opportunity to enter the property market with minimal upfront costs and can ease the burden of saving for a large deposit.
6. Using Superannuation to Buy Property: SMSF and FHSSS
If you’ve built up significant superannuation, you can explore ways to use it for property purchase:
-
Self-Managed Superannuation Fund (SMSF): If you have over $300,000 in super, you may be able to buy property through your SMSF. This allows you to borrow up to 80% of the purchase price.
-
Restrictions: You can only purchase an investment property or commercial property, not a home to live in.
-
Financial Advice: This is a complex strategy that requires professional financial advice.
-
Alternatively, you can use the First Home Super Saver Scheme (FHSSS):
-
Contributions: You can contribute up to $15,000 per year and $50,000 total into your super fund to save for a home.
-
Tax Concessions: Enjoy lower tax rates on your contributions and earnings, helping your savings grow faster.
-
Withdrawal: After meeting the criteria, you can withdraw these contributions and earnings to purchase your first home.
Do you have any questions?
Book a free 30-minute discovery call today to see how we can assist you with a low deposit home loan.
How to Qualify for a Low-Deposit Home Loan
Qualifying for a low-deposit home loan requires meeting certain criteria, but there are multiple ways you can increase your chances of approval. Here's what lenders typically look for:
-
Good Income: Lenders assess your income to ensure you can comfortably make the mortgage repayments. A steady, reliable income is crucial in demonstrating your serviceability (your ability to repay the loan). If you're employed, lenders will generally prefer a stable work history.
-
Purpose of the Loan: The intended use of the loan matters. If you're looking to purchase or refinance a property for owner-occupier purposes or investment, this is often seen favorably. However, using the loan for purposes like debt consolidation or other reasons may be considered depending on the strength of your application.
-
Property Type and Location: Some lenders have restrictions on the type of property you're purchasing or refinancing. Properties in mining towns, high-rise units, and display homes, for example, may not be eligible for low-deposit loans. Ensure the property meets the lender's requirements.
-
Clean Credit File: Lenders generally prefer borrowers with a clean credit history. This means no missed payments, defaults, or negative marks. However, some lenders are more lenient if you have at least 10% or more of a deposit, even with a less-than-perfect credit file.
-
Genuine Savings: Most lenders require that a portion of your deposit be "genuine savings," meaning it must be accumulated over a period of at least three months. This rule can be waived with certain lenders if you meet specific criteria, but it is still important to have a savings history.
-
Reasonable Asset Position: Lenders also consider your asset position. If you have assets like a car, savings, or other valuable items, it can improve your application. Your age and income level also play a role in determining your asset base.
-
Stable Employment: Lenders typically prefer applicants who have been employed in the same role for at least five months or have worked in the same field for at least two years. A full-time job is often preferred, but some exceptions may apply.
-
Low Debt Levels: To improve your chances of approval, ensure that your unsecured debts (like personal loans or credit card balances) are manageable. Lenders usually want to see that these debts do not exceed 5% of the purchase price of the property. A history of making timely repayments on these debts can also help your case.
Can I Get an Interest Rate Discount?
Yes, you may be eligible for an interest rate discount with a low-deposit loan, especially if you have a deposit of 10% or more. For loans over $500,000, some lenders offer discounts between 1.20% to 2.35%, depending on the specifics of your loan.
If you have 5% deposit, you may still qualify for a similar deal, but certain conditions will apply. However, if you have a 3% deposit or less, your options may be more limited, and the focus will be on securing approval rather than negotiating for a discount.
On the other hand, a 15% deposit or more significantly boosts your negotiating power with lenders, potentially giving you access to better interest rates and terms.
Choosing the Right Lender
The lender you choose plays a critical role in your low-deposit home loan journey. It can impact:
-
Interest rates
-
Terms and conditions (e.g., waived LMI, loan flexibility)
-
Access to better deals
Working with a mortgage broker can make a significant difference. Brokers with specialist knowledge and relationships with multiple lenders can help you navigate the complexities of low-deposit loans. They can also negotiate on your behalf to secure better terms, potentially saving you money over the life of the loan.
Next Steps
If you're thinking about applying for a low-deposit loan, it's essential to work with an experienced broker who can guide you through the application process and help you secure the best deal. Completing a free assessment can give you a clearer idea of your eligibility and help you take the first step towards homeownership.
If you’re considering a low-deposit home loan, speak with one of our experts. Call us at (03) 9566 7247 or book a free 30-minute discovery call to find out how we can help you secure the right loan for your situation.
Frequently Asked Questions about Low Deposit Home Loans
Do You Have any Questions? We're here to Help!
If you have any questions or need assistance, feel free to reach out! Our team of experts is ready to guide you through the process, whether you’re looking to secure a low deposit home loan, need advice on home loan features, or have queries about eligibility.
Call us on (03) 9566 7247 or book a free 30-minute discovery call today and we'll be in touch to help you navigate your home loan journey. We're here to make your home-buying process as smooth as possible!
Years Experience
20+
in Residential & Commercial Banking