With property prices continuing to rise across most capital cities, trying to save a 20% deposit to get into the market is a struggle that many Australians face.
Are low deposit home loans actually being offered by lenders?
How big of a deposit do I need?
So-called “low deposit home loans” are also known as high Loan To Value Ratio (LVR) home loans.
Did you know that anything less than a 20% deposit is actually considered a high risk by most banks?
Luckily, there are lenders than can allow you to borrow over 80% or even 90% of the property value.
You may still qualify for a home loan even if you have a:
There’s also the federal government’s First Home Loan Deposit Scheme for first home buyers.
Give us a call on 1300 889 743 or fill in our online enquiry form to find out if we can 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 black 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 3 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 relative 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 5 months in your current role or 2 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.
How do low deposit loans work?
As previously mentioned, borrowing more than 80% LVR is considered to be a high risk so most Australian lenders have limited the maximum amount they will allow you to borrow to a 10% deposit home loan plus LMI.
Getting approved for a 10% deposit home loan requires you to provide strong evidence to the lender that you’re a good borrower. Since only a handful of lenders offer 5% deposit home loans plus LMI, getting approved with anything less than a 10% deposit is even tougher.
The great thing is that once you’re approved, you can enjoy the relatively same interest rates as someone who has a 20% deposit.
Do all lenders offer low deposit home loans?
No, not all lenders will approve low deposit mortgage applications, in particular, the major banks.
For borrowers with a 5% deposit or less, we tend to try for a non-bank because they are:
- Less restrictive in their requirements.
- There tends to be little difference between their interest rates and a bank.
- Sometimes we hear about a special offer that far outweighs anything a bank can offer.
Please call us on 1300 889 743 and we can tell you how we can help.
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?
For a limited time, there is a 1.10% discount available for all loans over $500,000, and 1.00% for loans over $250,000 and up to $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.
Will I always be charged a higher interest rate?
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.
Can I avoid LMI or reduce the cost?
There are actually a few things you can do.
Firstly, to avoid LMI completely, you could organise a guarantor to secure your mortgage with their property. In most cases, this would be your parents’ home and it would allow you to borrow 100% of the purchase plus the costs of completing the purchase, no LMI or genuine savings required.
If you’re an eligible professional, such as a doctor or a vet, and you have a 10% deposit on the other hand, you may also qualify for waived LMI or at least a reduced premium. This can save you literally thousands off your home loan.
If you’re not an eligible professional but you can save a little more and bring your deposit to 15%, then two of our lenders have an exclusive LMI waiver.
For both a guarantor loan and the 90% waived LMI and 85% waived LMI offers, strict conditions apply and you’ll have to meet all other serviceability requirements.
Please complete our free assessment form to discover if you’re eligible.
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 the interest rates they can offer you as well as other discounts and terms such as waived LMI.
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.
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 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?
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! For first home buyers and investors across Australia struggling to save the deposit they need, there are “no deposit” home loan solutions out there if you get a little creative.
Borrowing 100% of the property value plus the extra costs of buying a property, including stamp duty and conveyancing, no longer exist in the mortgage market but you can actually borrow this much if your parents or a close relative act as guarantor on your home loan.
Not the right solution for you or can’t organise a guarantor?
There are five other no deposit options which may suit your situation better:
You can find more information and qualifying criteria about these six solutions on the no deposit home loan page.
Am I better off saving a bigger deposit?
It’s a good question to ask and one that many would-be borrowers carefully consider.
Grant, 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.
Do I get all of the same features with low deposit home loan?
In most cases, you’ll enjoy the same home loan features as someone with an 80% LVR home loan.
Does it matter whether I have a 3%, 5%, 10% or a 15% deposit?
No, you’ll still enjoy the same features but bare in mind that with only a 5% deposit or less, line of credit and interest-only terms aren’t normally available.
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.
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!