Are you currently saving to buy your first home? If so, are you feeling intimidated by how much money you think you need to save? You’ve probably heard that you need a pretty sizable deposit before you can start applying for a home loan. But this is easier said than done. Fortunately, there are alternative options available, like no deposit home loans.
To avoid Lenders Mortgage Insurance (LMI), you’ll usually need a deposit of at least 20%. And a 20% deposit on a median-priced home in Australia now translates to a whopping $135,700! According to PropTrack’s Housing Affordability Report for 2023, if you’re an “average-income household”, it will take you 5.7 years to save that much money. And those savings are only achievable if you’re putting away 20% of your total household income (something that is increasingly difficult to do with the rising cost of living).
No Deposit Home Loans in Australia
At this point, you may be thinking, “A no deposit home loan sounds too good to be true!” And you’re right to be sceptical. In Australia, there are now very few no deposit home loans on offer. Those that are available typically come with eligibility criteria so strict it’s almost impossible to achieve.
Additionally, a home loan with no deposit is considered to be a “high-risk” loan, meaning it will usually come with much higher interest rates and fees. Fortunately, it’s not all bad news. There are some competitive home loan products available to borrowers who have minimal or even no deposit savings.
Can I Apply for a No Deposit Home Loan?
There are several good options available to borrowers who haven’t been able to save up a home loan deposit. These alternative solutions can potentially give you the best of both worlds: a viable mortgage product from a reputable lender but without the need for a 20% deposit.
However, as with any kind of loan, individual lending criteria apply. So, if this is something that you’re interested in, the best thing to do is speak directly with a mortgage broker. An experienced broker will be able to talk you through the various options available and help you identify which one is best for you.
What Kind of No Deposit Home Loans Are Available?
While there are a few different kinds of no deposit home loans available, a good tip is to look for ones that don’t require Lenders Mortgage Insurance (LMI). If a borrower hasn’t saved up a 20% deposit, then most lenders will view them as being at a “higher risk” of defaulting.
Because of this, most lenders will charge Lenders Mortgage Insurance on any loans that borrow more than 80% of the property purchase price. LMI is an insurance policy that the lender takes out to cover any potential losses that may result from you defaulting on your mortgage.
If you haven’t got a 20% deposit saved, then some of the best options available include:
- Applying for a guarantor home loan
- Taking advantage of government grants for first home buyers
- Using a monetary gift from a third party
- Utilising superannuation funds
- Accessing equity
These are all seen as good options because they make it possible for you to get a mortgage without having to pay for Lenders Mortgage Insurance (LMI).
No Deposit Home Loans Without Lenders Mortgage Insurance (LMI)
As we’ve already discussed, you have a few different no deposit loan options available. However, each option comes with different lending criteria and various pros and cons. This is why it’s important to thoroughly assess all of your options before making a final decision.
1. Guarantor Home Loans
This is considered to be one of the best options for Aussie homebuyers who haven’t yet saved up a deposit. A guarantor mortgage is when a family member or friend offers the equity in their property as security for your home loan.
For example, if your parents own their own home, they can sign on as guarantors for your loan. With a guarantor, a first home buyer may be able to borrow up to 105% of the purchase price, making it easier to cover transfer duty and other associated costs.
2. Government Grants
If you’re a first home buyer, you can take advantage of government initiatives to jumpstart your home buyer’s journey. These include the First Home Loan Deposit Scheme (which allows you to apply for a mortgage with a 5% deposit and remain exempt from paying LMI) and the First Home Owner Grant.
3. Monetary Gifts
Some lenders may accept this type of deposit (funds you didn’t save up yourself) provided you can prove the money was a gift and you’re not expected to pay it back. This could include a cash present from your parents, an inheritance or any money that you’ve won.
4. Superannuation Funds
The First Home Super Saver (FHSS) scheme allows you to use voluntary contributions from your superannuation fund as a deposit for a home loan. Alternatively, if you have a Self-Managed Super Fund (SMSF), you can use your superannuation funds to borrow up to 80% of the purchase price.
5. Accessing Equity
Some lenders will accept home equity as a deposit. If you already own a house and have built up enough equity, you can use that equity as a deposit to buy an investment property.
Talk to a Broker About No Deposit Home Loans
The ability to apply for a home loan, without having to save for a deposit first, means owning your own home could be more achievable than you think. But no deposit home loans do come with certain risks and restrictions, so it’s important to start with the right advice.
If you’re ready to get a foot on the property ladder, then contact the home loan experts at Sunshine Coast Financial Solutions. Our experienced team of mortgage brokers will happily answer your questions and provide free advice tailored to your financial situation.
Give us a ring at (07) 5437 9073 or schedule an appointment to discuss your options.
Meet Chris Wilson, the heart of Sunshine Coast Financial Solutions (SCFS). With over a decade of experience in finance, Chris started his journey as a broker with Aussie Home Loans in 2009. His dedication earned him the title of Rookie of the Year in 2010. By 2011, he was ready to build a business based on trust and strong partnerships.
