If you’re thinking of buying a house in Australia, saving for a deposit probably seems like given. After all, that’s what lenders use to secure your mortgage! But while putting down a deposit for a home is the simplest and safest way, it may not be the only way. Under the right circumstances, you can acquire a no deposit home loan that allows you to take out a mortgage with zero down payment.
So, how do you buy a house with no money out of pocket, exactly? Read on for everything you need to know about no deposit home loans.
Generally speaking, most lenders require a 10 to 20% deposit for a home loan. However, some offer 5% deposit home loans, provided you have a reliable source of income and meet the other criteria. It’s important to note, however, that you will need to pay Lenders Mortgage Insurance (LMI), which can add up to thousands of dollars.
While most lenders don’t offer zero deposit home loans, there are some situations where you may be eligible for 100% of the purchase price of the loan. We’ll cover these below.
There are three ways you may be able to purchase a home with no deposit:
This is when a guarantor, such as your parents, uses the equity on their own property to secure your loan. In this situation, you could borrow up to 105% of the purchase price and don’t need to show any savings.
The amount you can borrow under a guarantor loan depends on the type of borrower you are. Borrower types are as follows:
First home buyers: Those looking to buy their first home could borrow up to 105% of the property value.
Home builders: Borrowers wanting to build a new home could borrow up to 105% of the home and land costs
Refinancers: People looking to refinance could borrow up to 100% of their home’s value.
Debt consolidators and purchasers: People wishing to roll all their payments into one and buy a home could borrow up to 110%
Investors: Those looking to borrow to buy an investment property could borrow up to 105%.
Of course, these amounts may vary from lender-to-lender. Therefore, you’ll need to ask what you’re eligible for before taking out a guarantor loan.
You may be wondering ‘Can you be gifted a deposit for a house?’ The answer is yes, if you’re very lucky, your family can indeed gift you a non-refundable deposit to buy a home! Generally, your bank will require proof from your parents that the money is a gift that does not need to be paid back – usually in the form of a gift letter.
Some lenders may also have additional requirements (such as the funds being in your account before you apply), so be sure to consult them first to ensure your application goes smoothly.
A personal loan
If you have a very high income, clear credit history and less than $10,000 in existing debt, you may be able to get a personal loan as a deposit. If you fit the criteria, it’s fairly easy to borrow up to $20,000 as a personal loan and 95% of the value of your property as a home loan. However, borrowing this amount of money isn’t suitable for everyone.
A personal loan could be either a hindrance or help when it comes to applying for a mortgage. It all depends at how good you are at making your repayments on time. If you make your repayments late (or not at all!) this can sabotage your chances of securing a mortgage. However, if you consistently make them on time, this can increase your credit score and solidify for your reputation as a responsible borrower.
Yes, it is possible to use the First Home Owners Grant (FHOG) as a deposit. This is a nationwide scheme designed to make it easier for first-time buyers to purchase a property. This one-off payment ranges from $5,000 to $20,000, depending on where in Australia you live (be sure to check out eChoice’s guide to the FHOG in your state) However, in most cases, this won’t be enough to cover a deposit.
The minimum deposit to purchase a home is generally 5%, but you also will need to pay Lenders Mortgage Insurance. Generally, most lenders ask for a deposit of 10 to 20%.
No, the First Home Owners Grant is only available for residential properties. While the rules vary from state to state, you must move into the property within 12 months or purchasing and live there for between six to 12 months.
In Australia, you can’t withdraw from your superannuation to purchase a home. However, if you’ve made voluntary super contributions, first home buyers can access up to $30,000 of this for a house deposit. You can also use a self-managed super fund to buy a property.
Using a credit card is an increasingly popular option for loan deposits. The 2016 Genworth Homebuyer Confidence Index found that around 20% of first home buyers had admitted to using a credit card to reach the deposit amount for their home loan, which was up from 3% in 2013. However, due to credit card limits, this is generally used as a ‘top-up’, not to pay the full deposit. For example, if you were buying a property worth $400,000 with a minimum deposit of 10% and you only had $30,000 saved, you could use the credit card for the remaining $10,000.
However, this option isn’t for everyone and it’s not without its risks. You must be able to afford both the mortgage and credit card repayments, as well as having a clear credit score.
A lender will also need to accept your credit card as part of a deposit, and even if they do approve this form of payment, your loan will be deemed high risk and assessed accordingly.
Using a credit card for your mortgage deposit also doesn’t get around the genuine savings requirement – which generally equates to around 5% of the property price.
You can acquire a home loan with no savings if you use a 105% guarantor mortgage or are gifted the deposit. If you go down the traditional route with your mortgage, you may also be able to bypass the genuine savings requirement if you can prove six to 12 months of rental history. However, this will depend on your lender.
If you are purchasing a low-cost property, meet the criteria to borrow a high loan, and are claiming the First Home Owners Grant, it may be possible to purchase a property with a $10,000 deposit. However, chances are you will end up paying at least this amount in Lenders Mortgage Insurance.
When applying for a home loan, most lenders want to see genuine savings. But what does that mean, exactly? While each institution will have its own policies, this will generally mean savings held or accumulated for at least three months.
The only way you can borrow more than the property value of a home is through a guarantor loan. If you are a first home buyer, will be using the home as an investment property or are constructing a home, you could borrow up to 105%. If you are using it for debt consolidating and purchase, you can borrow up to 110% of the property value.
As mentioned in this article, you can seek financial assistance from a lender or guarantors to help put a deposit down on a property. The First Home Owners Grant also exists to help first time buyers put down a deposit, however this is only applicable to residential homes.
Technically, it is possible to buy a property with no steady employment, but it makes it far more difficult. Most lenders want to see genuine savings history and regular income. However, if you have significant savings, many liquid assets, another source of reliable income or are being gifted the deposit or a guarantor loan, you may still be able to purchase a property.
So, you’ve decided you want to go down the traditional route for a home deposit? There are various steps you can take to get there faster:
Determine how much you will need
The first step for saving for a home deposit is determining how much you will actually need. Even if you haven’t decided on exactly what you want to buy, start window-shopping around in the areas you’re interested in. While this may change in accordance with current market value, this will give you an idea of median prices. Then, look at how much you will be able to comfortably borrow and payback in light of your current financial circumstances. Factor in your FHOG eligibility and this should give you a starting point for how much you’ll need for a deposit.
Manage your debts
Whether it’s credit card repayments, a personal loan or small lending services like Afterpay or ZipMoney, now is the time to get on top of any debt obligations. The less debt you have, the easier it is going to be to secure a mortgage. However, that’s not to say that using credit is a bad thing as a potential borrower. Paying back debts on time can boost your credit rating, which can help you get your application over the line.
Cut back where possible
Many people choose to move back in with their parents or with housemates to reduce their living costs. Other options include selling a car and catching public transport, eating out less and eliminating expenses that are ‘wants’, not ‘needs’.
Create a savings plan
Once you’re aware of how much you need to save, what you can cut back on and any debts you need to pay back, you can create a budget and savings plan. This will not only help you get your deposit together but also satisfy the genuine savings requirements when applying for a home loan.
Yes, it is possible to apply for a home loan without the assistance of a mortgage broker. However, it can be a confusing, stressful and time-consuming process if you’re not up to speed with real estate jargon and current property market.
A mortgage broker will be able to find you the best mortgage deals and ensure you’re well-placed to get approved for a loan. Contact one of eChoice’s experienced mortgage brokers today and get one step closer to buying your dream home.
This information is a guide only and is an estimate only based on the past 12 months of aggregated online mortgage enquiries from eChoice and partner programs.
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