What if you don’t have a deposit saved but you are ready to purchase a home? There are no deposit home loan options available if you get a little creative with your loan.
What Is a No Deposit Home Loan?
A no deposit home loan, also known as a 100% home loan, doesn’t exist in the traditional sense like it used to. Even the most flexible lender in the mortgage market won’t offer an unsecured 100% home loan.
This doesn’t mean you should postpone your dreams of buying a property just because you haven’t saved up enough for a deposit. Not yet, at least. You may be able to use other means to secure your mortgage.
What Are My No Deposit Loan Options?
Without a traditional deposit, you’ll need to have something else to secure the loan and make offering a mortgage to you less risky for the lender. Here are the different ways you may be able to qualify for a mortgage without a deposit.
This is the most popular way to get a no deposit loan. A lot of first-time homebuyers use a guarantor loan. You may not have had the chance to save up tens of thousands for a deposit but you may still be able to comfortably manage a mortgage. With some help from a guarantor – usually your parents or another close relative – you can make your home buying dream a reality now rather than in a few months or years when you finally have enough for your deposit.
With a guarantor loan:
- Your loan is secured with your guarantor’s own property.
- You don’t need to demonstrate you have a genuine savings.
- You can borrow as much as 105% of the home value, which will cover stamp duty, conveyancing, and other related fees as well as the purchase price.
If you are purchasing an investment property and you already own your own home, you can use your built up equity to secure your loan. This way, you don’t need a deposit, as long as you have enough equity. You’ll still need to have money saved to cover stamp duty, your application fee, and other costs, however.
This option will only work if you are in an extremely robust financial position:
- If you have a high income
- Your existing debt is less than $10,000
- You have a squeaky clean credit history
You may have a small deposit, which doesn’t necessarily have to be genuine savings
For this borrowing strategy to work, you’ll want to be able to combine a small deposit – such as a 3% or 5% deposit, with your personal loan to reach 20% of the purchase price, or at least more than 15%. This higher deposit will give you more options when you apply for a mortgage.
Are your parents or other relatives willing to help you buy a home? You’re not alone. More than half of first homebuyers use the money gifted to them by their parents for some or all of their deposit.
You don’t even need a 20% deposit when you use gifted money. With a 10% or 15% deposit, or more, some lenders won’t require you to have genuine savings.
If you have at least $150,000 in superannuation, you can buy a property with a self-managed super fund (SMSF). An SMSF may be a great option for taking out a no deposit home loan in some cases, but this strategy isn’t right for everyone.
- It’s complex – you’ll need to work with a financial advisor to set up the fund and to ensure it’s a wise financial move for you.
- You can only borrow up to 80% of the purchase price – you can’t take out a high LVR SMSF loan.
- It has to be for an investment property, not a home you plan to live in.
The Best No Deposit Option
Of all the options for a no deposit loan, guarantor loans are the most practical choice.
- You won’t have to deal with the extremely strict lending criteria of the other options.
- You don’t need any money for a deposit.
- You won’t have to pay Lender’s Mortgage Insurance.
- With good credit and a high income, you can qualify for a competitive loan with a low interest rate.
To protect your guarantor, this type of loan only involves a fixed liability – they only risk the agreed upon amount, not their entire property. Guarantors can also use a term deposit to secure the loan, which means they won’t even have to involve their property.
If someone isn’t willing to act as a guarantor for you, then you may want to pursue other possibilities.
Contact us today and talk to one of our loan specialists about your options. Call (07) 3146 5732.
Saving the Deposit Yourself
If none of these options fit your financial lifestyle, your next best option is to save the deposit yourself. Don’t worry, you don’t need to save a full 20% deposit. You can get a low deposit loan instead. However, keep in mind, you’ll need to meet strict criteria to prove you are a reliable borrower and you’ll have fewer lending options the smaller your deposit.
Here are tips to help prepare and to put you in a stronger position as a borrower:
- Figure out how much you need to save – aim for at least a 5% deposit, as well as enough for stamp duty and other fees.
- Set up a separate savings account and make regular deposits every month.
- Work to improve your credit by paying all your bills on time, including your rent. Also, don’t take out any new credit cards or personal loans unless you really need to.
- Monitor your credit and rental history periodically to ensure there are no errors.
- Keep your day job. Lenders prefer job consistency because it indicates your income isn’t going to change. You don’t want to switch jobs or quit to become self-employed and start your own business right before applying for a loan.
- Try to reduce your personal debts as much as possible.
The more you can do to improve your standing as a borrower, the easier it will be for you to qualify for a loan that is close to 100% LVR.
How to Qualify for a No Deposit Loan
With a no deposit mortgage application, you’ll have to meet high standards as a borrower. There isn’t a lot of potential for leniency like there can be with some low deposit home loans.
- Clear credit: You’ll need to have excellent credit. If you have a history of late payments or other credit issues, you may want to spend some time improving your credit history before applying.
- High income: When you are applying for a high LVR loan, banks will want to see that you can easily service the loan with a high income.
- Consistent job: You’ll need to have a permanent, full-time job that you’ve been working in for at least 6 months.
- Minimal debts: A bank isn’t going to lend you a no deposit mortgage if it will stretch your finances to their limit. So, you can’t have a lot of personal unsecured debt. Pay off as much as possible before applying.
- Property location: With no and low deposit loans, lenders are even more strict about where the property is located – it should be in a major town, a capital city, or a regional centre.
- Property type: The type of property also matters. Think standard types like a unit, townhouse, or house. With studios, units in high rise apartments, and other less common properties, you may not qualify, even if you have good credit and a high income.
To find out if you’ll qualify for a no deposit loan, fill out our online enquiry form to learn more.
What Savings Will I Need for a No Deposit Home Loan?
With a no deposit loan, if you have a guarantor, you won’t require a genuine savings. Even better, if you are a first homebuyer, you can take advantage of the First Home Owners Grant, or FHOG, which will cover all or nearly all of your home buying costs, like stamp duty and conveyancing fees.
Depending on if this is your first home purchase or not and the type of mortgage, there may be other savings goals you’ll want to meet so you aren’t thrown off by unexpected or overlooked costs.
- Investment loans: If you are purchasing an investment property, even if it is as a first homebuyer, you’ll have to cover stamp duty and all purchasing costs yourself. The government grant is only for owner-occupier loans. Plan to save about 4% of the purchase price to cover these costs, plus your deposit.
- Construction loans: With a guarantor loan, you can take out a construction loan to build your first home. However, it’s a good idea to have around $5k saved to help cover costs in case your construction project goes over budget.
- Second owner occupier-loan: If you aren’t a first-time homebuyer, such as if you are moving to a new house, you won’t be eligible for the First Home Owners Grant. You’ll need to save enough for purchasing costs and stamp duty.
No Deposit Loan FAQs
Can I use a no deposit loan to consolidate debts?
One of the perks of a mortgage is you can use the lower interest rate to consolidate your other debts like credit cards and a personal loan. But, the only way you can borrow more than 100% of the purchase price – so you’d have enough for the property, purchasing costs, and your debts – is if you have a guarantor. With a debt consolidation loan with a guarantor, you can borrow up to 110%.
Do no deposit loans have different features than other loans?
You can borrow 100% and qualify for the same loan products as a borrower with a 20% deposit when you have a guarantor. That means, if you are looking for features like a 100% offset account, flexible repayment options, fixed interest rates, and other options, you’ll be able to get what you want out of your loan product, even without having actually saved for a deposit. Just keep in mind, you’ll have more options the more you can demonstrate you are a reliable borrower.
You can’t, however, get a line of credit loan with a no deposit mortgage application. However, you can always refinance in a few years to change loans if you want.
Is it smarter to just save for a deposit?
The answer to this question depends on several variables. Look at these factors to help you decide if you should focus on saving or talking to your parents or other relatives about becoming a guarantor for a 100% loan:
- If you can save a large deposit in about six months, it may be worth waiting.
- You’ll have to pay LMI with a low deposit loan (a deposit that's less than 20% of the purchase price). You can avoid LMI with a no deposit loan with a guarantor.
- In a market with rising prices, you’ll need a bigger deposit and you could end up paying thousands (or tens of thousands) more in capital gains – a guarantor loan with no deposit may be a better option than waiting to save.
- In a market with decreasing or stable prices, you may be better off saving for a deposit if organising a guarantor isn’t a preferred option for you.
You can talk to a local realtor to get an idea for which direction prices are moving in your area. To gain some much-needed clarity, don’t hesitate to call us on (07) 3146 5732 or fill out our online enquiry form.
Will I end up with a high interest rate?
No deposit loans don’t have to come with high interest rates. In fact, with a guarantor, there are many lenders who will be willing to offer incredibly competitive interest rates. Some will even waive your application fee or offer other incentives.
The fact is, different lenders will have different preferences. Some are very risk adverse and will avoid most high LVR loans. Others regularly lend to borrowers with a low deposit or no deposit and are willing to offer an attractive mortgage with a low-interest rate in order to gain your business.
As mortgage brokers with more than a decade in the industry, we know what different banks prefer as well as when particular lenders are aggressively marketing to a certain type of borrower. Contact us today and we can help.
How much is LMI?
LMI premiums vary. The size of your mortgage is the biggest determining factor. LMI premium rates are based on what bracket your loan is in. For a small loan, under $300k – LMI will cost closer to 2% of the loan amount. Above $500k, you’ll pay around 4%.
How can I avoid LMI?
With a guarantor, you can avoid paying LMI – which can save you thousands of dollars. Here’s what you need to know:
- Not all lenders will allow you to borrow the full purchase price and waive LMI, even with a guarantor. A lot depends on your characteristics as a borrower.
- You can avoid LMI if you can come up with at least 10% of the purchase price as a deposit if you work in certain professional fields and have a low-risk application.
How many lenders offer no deposit loans?
You can get a no deposit loan from both bank and non-bank lenders, including NAB, St. George Bank, ANZ, Homeside Lending, and Westpac. But, only if you have a guarantor. There are fewer lenders who will approve a 100% loan application with the other no deposit loan strategies like using a personal loan or superannuation.
How to Apply for No Deposit Loans
Because no deposit home loans are more complicated, it’s not easy to figure out the best route to take when applying for a mortgage. These are some of the questions you'll need to answer:
- Should I get a no deposit loan or save?
- Am I a good candidate for SMSF loans or using a personal loan for the deposit?
- What is the best way to avoid LMI for me or am I better off paying it so I can enter the market sooner?
- Currently, which lenders are offering attractive no deposit loans?
- Will a no deposit loan work for my investment strategy?
There are also a few important drawbacks you need to be aware of with no deposit loans.
- You may have to pay a higher interest rate.
- Lenders will expect you to meet strict lending criteria.
- Your repayment amounts will be high because you are borrowing the full purchase price – make sure you are comfortable with the amount you’ll owe every month.
But, the good news is, when you understand what’s involved in terms of costs and lending criteria, and you have a plan in place to make the most of your no deposit loan, this can be a practical way to get a great home loan. You can start paying down your mortgage soon instead of struggling to save while paying rent. And, with the benefits of a guarantor loan, you can still qualify for low-interest rate and get all the features you want from your loan without having to pay LMI.
Are You Thinking of Applying for a No Deposit Loan?
Contact us today and we can help you with your no deposit home loan. We can also help you to get ready to apply for a mortgage in the future if you aren’t ready now.
Our mortgage specialists have years of experience with no deposit borrowing, guarantor loans, low deposit loans, and more. Call us on (07) 3146 5732 to get started.