Last Updated: 29th May, 2024

Low-deposit home loans are designed to get you into your new home sooner than you’ve imagined by allowing you to purchase a home with a deposit as low as 2% of the property value. The power of homeownership is then in your hands.

Let’s delve into how you can acquire your property sooner using a low-deposit home loan.

How Do Low-Deposit Loans Work?

Since borrowers provide a lower deposit with this type of loan, they will have a higher Loan-To-Value Ratio (LVR). This means lenders might require them to pay Lenders Mortgage Insurance (LMI). The LMI protects the lender in case the borrower defaults on the loan.

Once you’re approved for a low-deposit home loan, you can enjoy relatively the same interest rates as someone who has a 20% deposit. This means depsite having a smaller deposit, you won’t be penalised with a higher interest rate.

Details Low-Deposit Home Loan Traditional Home Loan
Required Deposit 5% 20%
Lenders Mortgage Insurance (LMI) Yes No
Time To Homeownership Quicker entry into the property market Longer savings period required
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How Large A Deposit Do I Need?

You might need at least 5% of the property value, which is the minimum that most lenders accept. We have lenders on our panel that allow you to borrow over 90% of the property value. So, you can qualify for a home loan even if you have a:

Government Help For Low-Deposit Borrowers

Besides lenders offering their low-deposit home loan products, there are several federal government schemes and grants that can help you buy your home sooner.

  • The Home Guarantee Scheme involvess a guarantor scheme where the government guaranteeings 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:
  • 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 1300 889 743 or fill in our free online enquiry form to find out if we can help you get you approved.

How Do I Qualify?

Most lenders have quite strict lending criteria for borrowers with small deposits but, generally speaking, if you can meet the following requirements, you’ll have a good chance of getting approved even if you may have 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, jewelery, having a 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.

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Can I Get An Interest Rate Discount?

Did you know that we have a special arrangement from one of our lenders for borrowers with a 10% deposit?

There is a 1.20% to 2.37% discount available for all loans over $500,000. Conditions apply so please read more on the 90% home loan page.

There’s even better news if you only have a 5% deposit: you can get the same deal! Again, there are certain requirements and limits, so please read the 95% home loan page.

If you only have a 3% deposit or less, our brokers have considerably less negotiating power and the sole focus for us will be trying to get you approved.

With a 15% deposit or more, our mortgage brokers have a lot more negotiating power.

Discover if you’re eligible for an interest rate discount by completing our free assessment form.

FAQs: Low-Deposit Home Loans

Choosing The Right Lender Matters

The lender you go with can make or break your application but it can also mean the difference between you getting a great deal or just going with what the bank offers you as a low deposit borrower.

There can be massive differences in what banks offer you, as far as interest rates, discounts, terms such as waived LMI and more.

A mortgage broker with credit expertise and existing relationships with a number of lenders can give you the negotiating power you need to get the most value out of your mortgage.

Apply For A Low-Deposit Home Loan Today!

Speak with one of our low doc home loan specialists by calling 1300 889 743 or by completing our free assessment form today!