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Can you qualify for a no deposit home loan?

July 7, 2022

Buying your first home with no deposit – is it actually possible?

It is! Some lenders will lend you 100% of the value of a property with a no deposit home loan, although they often come with a few strings attached. To get a home loan with no deposit, you’ll usually need to meet strict lending criteria and you may need to use equity from another property. If you’re a first home buyer, you could access a no deposit home loan by having your parents go guarantor. 

A guarantor home loan allows you to use the property of your parents (or sometimes siblings, extended family or friends) as a guarantee for your loan. This means that should anything go wrong, the bank can turn to your guarantor for payments. Guarantor loans will allow you to avoid paying the Lenders Mortgage Insurance (LMI) that you would usually be required to pay with a deposit of less than 20% because the risk is lowered for your lender. If you don’t have a guarantor available to you, then your next best option is usually a low deposit home loan.

Low deposit vs. no deposit loans

No deposit loans and low deposit loans are both great options for getting onto the property market sooner, but there are a few differences between them.

Unlike no deposit loans, a low deposit home loan will require an upfront deposit, although it is usually much smaller than the 10 – 20% deposit that you would need to pay with a traditional loan. With a low deposit loan, you may only be required to pay a deposit of around 5% (or as low as 2% with Keystart loan!). 

If you’re a first home buyer eligible for the First Home Owners Grant (FHOG), this could mean you could get away with paying very little (or even effectively nothing) to get into your first home. This is because you can use the $10,000 First Home Owners Grant as your deposit – although you’d still need to consider the other upfront costs that come with buying a home, like moving expenses. If you’re building a new home, the FHOG is usually paid towards the first progress payment on your construction loan. 

Of course, there are some things to be mindful of – the main trade-off to this type of loan is that you’ll likely have to pay Lenders Mortgage Insurance (LMI), as most lenders require it when you’re borrowing more than 80% of the property value. For first time buyers struggling to save for a first home, the benefits usually outweigh the downsides – instead of waiting to save up, they can start building equity in their new property right away (rather than spending it on rent!) and avoid being priced out of their favourite suburbs.

So, which loan option sounds like the best fit for your financial situation? If you’re not sure which one you should opt for, or you think a no or low deposit loan doesn’t sound quite right for you – reach out to us! There are other finance options available and our team can help you find the perfect solution for your needs. 

I will need a deposit. How can I save quicker?  

If you don’t think you can qualify for a no deposit loan or the FHOG (or if the $10,000 grant will only be a portion of your deposit) you’ll probably need to save up a bit first. 

To make this process quicker and easier, the government has introduced the First Home Super Saver Scheme (FHSS). The FHSS allows buyers to voluntarily contribute funds to save money for their first home inside their super fund, allowing them to access concessional tax rates to save funds faster. You should keep in mind that there are strict rules around accessing super and you’ll need to satisfy strict conditions to access the scheme. 

Does my deposit have to be genuine savings?

If you have no deposit or limited savings, there may be other options that you can consider to get into a home of your own cash gifts from your parents, lotto winnings or some other type of windfall could be used towards your deposit. 

How to apply for a home loan 

If you want to apply for a home loan, it’s worth speaking to an expert! For help weighing up your options, get in touch with our in-house finance team today. They can assist you every step of the way throughout the finance process – from applying for loan to finance approval!

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