In the past, you could have applied for a no deposit home loan but Australian lenders no longer offer these types of mortgages after the fallout of the Global Financial Crisis (GFC).
The only exception to this is if you have a guarantor.
However, if you have just a 5% deposit, you may still be able to qualify for a home loan.
Do I qualify?
Generally speaking, you’ll need:
- A good income: Lenders tend to be quite strict when assessing your means of paying off a 5% deposit home loan, otherwise known as your ‘serviceability ratio’.
- Stable employment history: Although there are exceptions, this usually means that you’ve been working in the same job for the past 6 to 12 months.
- A clear credit history: Your credit file must have minimal credit enquiries and be free of defaults. As a general rule, credit cards, rent and bills like utilities and mobile plans need to have been paid on time for the past 6 months.
- Strong asset position: Lenders will assess your income to asset position relative to your age. It’s assumed, for example, that if you’ve been working full time for a few years that you’ll have a car and a decent amount of savings relative to your income.
- Little to no existing debt: Having more than one credit card and/or personal loans is a red flag for most lenders.
- Proof of 5% in genuine savings: This is usually in the form of consistent deposits into a savings account over a period of 3 months. There are some exceptions to this though.
- Non-traditional property or location: Banks are pretty conservative when it comes to property located in high rise units and small or regional. There are other types of ‘unusual property’ that may see your home loan application declined.
Want to know if you qualify for a 5% deposit home loan?
Fill in this free and easy assessment form or call us directly on 1300 889 743 and let us help you find the right home loan for your needs.
How much can I borrow?
With 5% of the purchase price (Loan To Value Ratio) as a deposit and a strong financial position, you may be able to borrow up to $2,500,000 with one of our lenders.
This is a unique offer.
Lending policies are normally tied to the requirements of Lenders Mortgage Insurance (LMI) providers.
Mortgage insurers charge lenders an insurance premium if they believe that they’re lending to a risky borrower, which lenders than pass on to you as the customer.
LMI providers can also limit the amount that a bank can lend to an individual borrower, which is usually around the $700,000 or $800,000 mark and never usually more than $1,000,000.
Thanks to special agreement that one of our lenders has with their mortgage insurer, you may be able to borrow more than $1,000,000 with just a 5% deposit.
Why do I need a 5% deposit?
Ideally, banks require you to have around 10-20% of the purchase price as a deposit in order to reduce their risk.
Of course if you’re a first home buyer, you may be eligible for a First Home Owners Grant (FHOG) and even a stamp duty waiver (depending on your state) which brings this deposit requirement down slightly.
Then there is the government’s First Home Loan Deposit Scheme available for first home buyers starting from January 2020.
Under the scheme, first home buyers with deposits as low as 5% do not have to pay any LMI fees as the government will essentially guarantee the difference.
Despite this, having a 5% deposit is the bare minimum you’ll need because no deposit home loans no longer exist.
The only exception is with guarantor loan arrangement in which your parents (typically) secure your entire home loan amount using their property as security.
As previously mentioned, home loans for more than 80% LVR are considered high risk and lenders will only write a certain number of 5% deposit home loans over a certain period of time.
The reason is that they want their ‘books to be balanced’, that is, have a good mix of high risk and less risky loans.
This ‘mix’ varies from lender to lender and it’s ‘flavour of the month’ in a way because their appetite changes on a regular basis.
Alternatively, are you able to save more than 5% as a deposit?
Even a little extra can make a massive difference to your loan repayments over the life of the mortgage.
Use the home loan repayment calculator to get a fairly accurate estimate of how much you could save depending on the size of your deposit.
Increase your deposit up 10% of the purchase price, you may be eligible for interest rate discounts with the help of a mortgage broker.
Is a 5% deposit all I need to buy a property?
Apart from the 5% deposit, you’ll need to cover extra costs associated with the purchase of the property.
These costs include home loan application (if applicable), mortgage registration and conveyancing fees, as well as such Government costs like stamp duty and a transfer fee charged when registering your name on the property title.
You can estimate the costs of buying a property in your state by using the home purchasing costs calculator.
This guide to the costs of buying a home also provides an easy-to-understand breakdown of these costs.
Can I avoid paying LMI?
A Lenders Mortgage Insurance (LMI) premium is usually charged by a lender when you borrow more than 80% of the purchase price.
LMI premiums can vary from lender to lender because each of them have their own rate brackets.
For example, if you had a 5% deposit on a $600,000 property ($30,000), you could be paying more than $28,000 in LMI.
Unfortunately, you’re required to pay LMI unless you can put down 20% of the purchase price as a deposit.
There are exceptions to this rule with some lenders!
You may actually be able to qualify for waived LMI or a reduced premium if you’re able to meet the below requirements:
- Your home loan must not exceed $800,000 and must be for no more than 95% of the property value plus LMI.
- The loan must be for the purposes of buying a property not for your refinancing an existing mortgage.
- You have at least 5% as genuine savings.
- The main income earner must have been in their job for at least 2 years (the borrower with the lower income must be over 6 months in their job).
- Your credit history must be free of black marks.
- The property must be located in a capital city or a major regional centre.
Tip: There’s no point shopping around for the best interest rate only to get your loan declined because you don’t meet certain requirements.
As a mortgage broker, we focus first on identifying lenders that will accept your application, and second, on negotiating a good deal on LMI.
Start off on the right foot and call us on 1300 889 743.
What if I’m not eligible for reduced mortgage insurance?
Luckily, some lenders may allow you to add or ‘capitalise’ your mortgage insurance premium meaning you don’t need to cover this cost upfront, saving you thousands of extra on top of your 5% deposit with a 98% home loan.
You can usually capitalise LMI for loans up to $1,000,000!
If you don’t qualify for a 5% deposit home loan plus LMI, we can still compare lenders for you to find you the most competitive deal based on your circumstances.
The LMI calculator will give you some idea of how much you could save by going with the right lender.
As a mortgage broker, we can compare lenders for you so you’re getting a good deal, including a competitive LMI premium.
Call us on 1300 889 743 or complete our free assessment form to find out how we can help you save thousands on your home loan.
Get an interest rate discount
One of our lenders currently has a 1.10% interest rate discount as a special offer for loans over $500,000, and 1.00% for loans over $250,000 up to $500,000.
To be eligible:
- Your loan must be for no more than 95% of the property value plus LMI.
- The loan must be for more than $250,000 and less than $1,000,000.
- You must have at least 5% in genuine savings (some exceptions are made for renters).
- You must be buying a property (refinances aren’t accepted).
- You must have been in your job for at least 6 months, with 24 months in the same line of work.
- You must have a clean credit history.
Can I borrow more to cover the extra costs of purchasing?
Are you eligible for additional loan facility with a limit of up to $20,000?
One of our lenders can offer you this special loan feature!
What the funds allow you to do is to cover the additional costs of buying a home including solicitors fees and stamp duty at settlement.
This finance option is generally only suitable for a borrowers with relatively high income because the repayments are quite high. Although the interest rate is the same as your home loan, you have a shorter period in which to pay back the loan facility.
Can the 5% deposit come from anywhere?
Being able to save the deposit yourself with regular deposits into a savings account over a period of 3 months is a direct reflection of your ability to make monthly mortgage repayments.
This is known as genuine savings and it’s a requirement for most lenders.
There are a number of other things that meet this genuine savings requirement, including:
Your own savings or term deposit.
- A gifted deposit from your parents.
- Tax refunds.
- Sales of assets such as your car or shares.
- First Home Owners Grant and other first home buyer incentives.
- First Home Saver Accounts.
One of our lenders can actually approve your 5% deposit home loan without you needing to meet this genuine savings requirement.
Please complete this free assessment form and one of our brokers can properly assess your situation to see if you qualify.
Easy strategies for saving a deposit
Although it doesn’t sound like much, saving a 5% deposit can be difficult with property prices continuing to rise and having to budget around paying bills, rent, credit cards or any personal or HECS/HELP debt you may have.
Give yourself a better shot at saving by:
- Setting up savings goals: This not only includes a long term goal but short and medium term goals as well. Regularly reviewing your progress is essential.
- Making a plan and keeping a timeframe in mind: Have a good look at your incomings and outgoings and be realised about how much you can put away on regular basis. Based on this savings.
- Having a tiered approach to saving: Start off your savings small and then progressively save more every week or month until you reach your savings goal and get you in the habit of budgeting.
Check out the ‘8 Things That Will Trick You Into Saving’ infographic to discover what the best savers do.
What if I have a bad credit history?
Having just one default on your credit file can stop you from borrowing more than 80% of the property value let alone allow you to qualify for a 5% deposit home loan.
In order to improve your chances of approval for a 5% deposit home loan:
- You may want to look at reducing your credit card limit to what you actually use.
- Pay off any small debts.
- Pay your bills and debts on time, every time for a period of 6 months.
Depending on the size of your paid defaults and the rest of your situation, you may qualify for a 5% deposit home loan with a specialist lender.
Check out the bad credit home loans page for more information.
Do you qualify for a 5% deposit home loan?
Speak to an experienced mortgage broker that specialises in 5% deposit home loans.
It can sometimes be difficult to get approved but with a professional to help you present a strong case you’re in with a better chance.
Call 1300 889 743 or fill in our free assessment form and we can tell you which home loan option is right for you.