95% Home Loan
No deposit home loans are no longer available in Australia. However, a range of lenders still offer loans for 95% of the purchase price, otherwise known as a 95% LVR loan.
Lenders are far more conservative when assessing your loan application. Read on to find out how you can get approved for a 95% loan.
Who can borrow 95%?
Borrowing 95% is relatively difficult compared to other home loans because you’ll need to meet stricter bank criteria to get approved.
So what types of borrowers are the banks looking for?
- Clear credit history: This means that your credit file has no blemishes whatsoever, specifically, payment of all of your bills such as rent, credit cards, personal loans and other debts need to have been on time every time for the last 6 months.
- Stable employment: In most cases, you must have been in your current job for 6 to 12 months. Sometimes an exception can be made to this policy.
- A good income: Lenders are more conservative when assessing your ability to repay a 95% loan. For this reason your ‘serviceability ratio‘ must be outstanding.
- Reasonable asset position: Lenders want to see that you have a good asset position relative to your age and income.
- Genuine savings: Almost all lenders require you to prove that you’ve saved 5% of the purchase price. However, if you don’t have genuine savings, then consider a 95% no savings loan or a 110% guarantor home loan.
- Minimal debts: People with many credit cards and personal loans are generally not accepted. As a rough guide, people who have more than 5% of the purchase price in unsecured debts such as personal loans and credit cards are often not approved.
- Location / property type: Many lenders may be hesitant to approve loans for properties in smaller towns, high rise units in the CBD or unusual properties.
Call us on 1300 889 743 or fill in our free assessment form and one of our mortgage brokers can let you know if you qualify for a 95% home loan.
How big of a deposit do I need?
As a general rule, first home buyers will need to contribute around 5% to 10% of the purchase price as a deposit.
The actual amount varies depending on the various first home owners grants and stamp duty concessions available in each state.
Second home buyers and investors will usually need a 10% deposit, half of which will cover the deposit on the property and the other half will cover stamp duty, conveyancing fees and other minor costs.
These figures are a rough guide only, please refer to your mortgage broker or conveyancer for exact figures.
You can buy a home with no deposit if your parents guarantee your loan.
The secret to borrowing a little bit more than 95%...
One of our lenders allows you to apply for an additional loan facility with a limit of up to $20,000 along with your 95% home loan!
The catch is that you must have 5% of the purchase price saved in a bank account to pay your deposit and qualify for the mortgage.
The funds from this additional loan can be used at settlement for costs such as stamp duty and conveyancing fees just like the funds from the mortgage.
The interest rate is the same as the home loan, however you are required to pay off the loan quickly so the repayments are relatively high.
Therefore, this option is only viable for people with a high income.
With the additional loan and capitalised mortgage insurance, the total loan is often over 100% of the purchase price!
This is a great option for second home buyers who have 5% in genuine savings, yet don’t have the funds to cover the stamp duty and other purchasing costs.
Not all lenders offer 95% loans
Australian lenders consider all loans over 80% of the purchase price to be a high risk. Because of this, they insure these loans with Lenders Mortgage Insurance (LMI).
LMI providers have their own lending guidelines that are stricter than those used by the banks so it’s harder to get approved.
In addition to this, lenders only have so much money to lend out. They want to maximise their profit while keeping risks under control. 95% home loans are a high risk so most of their available funds are allocated to less risky loans.
In short, lenders pick and choose who they approve for 95% loans.
Are you eligible for a 95% loan?
Call us on 1300 889 743 or complete our free assessment form to find out!
Can I borrow over $1,000,000?
Did you know that most lenders will only approve a 95% mortgage up to $700,000 or $800,000?
Some less conservative lenders will allow you to borrow up to $1,000,000.
However, the lender’s mortgage insurers have restrictions which will stop you from borrowing over $1,000,000.
One of our lenders has a special agreement with their insurer and can consider a 95% loan up to $2,500,000 for people who are in an exceptionally strong financial position.
For loans up to $1,000,000, LMI can usually be capitalised (added to the loan amount). Anything above that can’t be capitalised so, in effect, you’re borrowing approximately 91.5% after your LMI premium has been deducted from the loan.
Get a 1.40% rate discount!
Did you know that one of our lenders has a special 95% plus LMI home loan available for low risk borrowers?
- One lender currently has a 1.40% discount as a special offer for loans over $500,000, and 1.30% for loans over $250,000 up to $500,000!
- You must be buying a property (refinances are not accepted).
- You have at least 5% in genuine savings (some exceptions are made for renters).
- You’re borrowing no more than 95% of the property value plus LMI.
- You must have been in your job for at least 6 months, with 24 months in the same line of work.
- You’ve got a perfect credit history.
- You’re borrowing more than $250,000 and less than $1,000,000.
Give us a call on 1300 889 743 or fill in our free assessment form and we’ll help you to apply for a home loan with the lowest possible interest rate!
Other LMI discounts
If you meet the below criteria then please call us on 1300 889 743 or complete our free assessment form and we’ll see if we can get you either an LMI waiver or a drastically reduced premium at a fantastic interest rate:
- You’re buying a property (refinances aren’t accepted).
- You have at least 5% genuine savings.
- You’re borrowing no more than 95% of the property value plus LMI.
- 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).
- You have a perfect credit history.
- You’re borrowing no more than $800,000.
- The property you’re buying must be in a capital city of a major regional centre.
How can I avoid being overcharged?
When the banks seek funding on the international money markets, they pay a higher interest rate if their home loans tend to be a high percentage of the property value.
As a result of this, banks try to balance their home loan portfolio by charging a higher interest rate for 95% home loans.
Not every lender has this same approach! Some lenders have pricing that’s just based on the loan size.
By applying with one of these lenders you can get a fantastic interest rate.
The key is to know which banks are pricing aggressively to get more market share! As a mortgage broker, this is where we can help you to shop around and choose the best home loan.
Which lenders are the most competitive?
We usually work out which lenders can approve your home loan then work out what the best loans on offer from those lenders are.
There is no point shopping around for the best interest rate only to get your loan declined by the lender you choose!
If you make many applications, this will damage your credit score, which in turn will reduce your chances with other lenders. So don’t just apply with several lenders to see who approves your loan.
If you’d like to know which bank or lender is most suitable for your 95/5 loan then please call us on 1300 889 743 or fill in our free assessment form.
How much does LMI cost?
LMI is relatively expensive for 95% loans and can vary from 1.5% of the loan amount up to around 5.1% depending on the size of your loan and the lender that you choose.
Some lenders will allow you to capitalise your LMI premium on top of your loan so you may actually borrow as much as 100% when the premium is included.
For most lenders, the loan plus LMI premium can’t exceed 97% of the property value.
If you’re borrowing over $300,000 then because of the higher premium size the actual amount you receive is actually closer to 94% of the property value. This isn’t the case for all lenders as some don’t have this cap at 97%.
You can use our Lenders Mortgage Insurance Calculator to get an estimation of the LMI premium you’d pay with a range of lenders and insurers.
Will my application be credit scored?
Yes, almost all lenders use credit scoring to assess loans at 95% LVR. If your loan fails the credit score of the lender then it’s unlikely to be approved.
Use our Credit Score Calculator to find out if this will be a problem for your loan or not.
Are non-bank lenders better for 95% loans?
The major lenders tend to be very conservative with their lending policies for 95% home loans. The main reason that we choose a non-bank lender for our 95% borrowers is because they can’t get approved by a bank.
There isn’t normally a large difference in the interest rates offered by banks as opposed to non-bank lenders.
In fact, a lender of ours will occasionally come out with a special offer that’s way ahead of the competition!
Which loan features are available?
All standard loan features are available, including:
- 100% offset
- Fixed interest rates
- Basic loans
- Professional packages
- Line of credits aren’t normally available
- Restrictions apply to interest only loans
Talk to an expert mortgage broker
Here at Home Loan Experts, we have mortgage brokers that specialise in 95% home loans.
Please fill in our free assessment form or call us on 1300 889 743 to discuss your situation with an expert to land the right home loan for you.