Low Deposit Home Loans

A low-deposit home loan is designed to help you enter the property market sooner, allowing you to buy a home with a deposit as low as 2% to 5%.

According to our mortgage experts, you don’t have to wait years to save for a large deposit.

Let’s explore how low-deposit home loans work, who qualifies and how you can apply.

What Is A Low-Deposit Home Loan?

A low-deposit home loan is a mortgage that allows homebuyers to purchase a property with a deposit smaller than the standard 20%. Typically, these loans start with a 5% deposit through standard lenders, but can go as low as 2% or even 0% for eligible borrowers using government-backed schemes or guarantor support.

By reducing the initial savings required, low-deposit home loans help make homeownership more accessible.

Who Qualifies For A Low-Deposit Home Loan?

Low deposit home loans are ideal for:

• First-home buyers who lack a large deposit but have a stable income and borrowing power.
• Property upgraders who want to secure a property before housing prices rise further.
• Property investors who are looking to leverage their funds while maintaining strong cash flow.

How Do Low-Deposit Home Loans Work?

Low deposit home loans work by allowing you to borrow more 95% of the property value, meaning your Loan-To-Value Ratio (LVR) is high. Because of this higher risk, lenders require borrowers to pay Lenders Mortgage Insurance (LMI).

• Save for the minimum deposit required for a home loan. For a $600,000 property, that would be $30,000 (5% of the property value).
• Contact a broker or a lender about your low-deposit home loan options.
• LMI is applicable when borrowing more than 80% of the property value, which means the deposit saved is less than 20%.
• Once your loan proceeds, you can either pay LMI upfront or capitalise it with the loan.
• Waived-LMI home loan options are available through government schemes and specific lender offerings.
• By the time the settlement period approaches, you need to pay the deposit and other upfront costs, such as stamp duty and fees.
• Once the loan is established, you start your repayments. Higher loan amounts usually mean higher repayments, but you can offset this by making extra repayments or putting it into an offset account.

What Are The Pros And Cons Of A Low-Deposit Home Loan?

While low deposit home loans allow you to get into the market sooner with a smaller deposit, they come with strict serviceability and other additional costs.

How Much Deposit Do I Need?

Generally, you need at least a 5% deposit. The deposit you need depends on your eligibility for government schemes and guarantor support.

However, single parents can buy with a 2% deposit, and those using a guarantor can borrow up to 100% of the property value with no deposit.

Note: While a 2% to 5% deposit gets you started, you must also have extra funds set aside to cover purchasing costs like stamp duty and legal fees.

How To Get A Low-Deposit Home Loan

To get approved for a low-deposit home loan:

• Demonstrate strong serviceability
• Have a clean credit file
• Low Debt-To-Income Ratio
• A good genuine savings history

Because a low deposit means you are taking on a larger loan, your monthly repayments will be higher. Therefore, you must demonstrate strong serviceability, meaning your income comfortably covers the higher debt obligations alongside your living expenses.

Through Government Schemes

Nationwide government schemes, such as the Australian Government 5% Deposit Scheme and the Help to Buy Scheme, help buyers avoid LMI while using a small deposit.

Using A Guarantor

When using a guarantor, a family member leverages the equity in their own property to secure your mortgage. A parent’s equity acts in place of your deposit, allowing you to borrow up to 100% of the purchase price while completely avoiding LMI.

Through Lender Offers

Lenders also offer low-deposit home loans, but most also require the borrower to pay LMI. Exclusive waived-LMI options are available for some professionals and first-home buyers.