The bad news is that there are no lenders in Australia offering no deposit home loan without any savings proof. With lenders expecting up to 20% of the purchase price as deposit to qualify for a home loan, it may be tough to enter the property market if you haven’t been saving up regularly. As average property prices touch $600,000, you may need a deposit of up to $120,000 in genuine savings to have your home loan approved.
The good news is that there are still some options available even if you have no deposit saved for home loan. In case your heart is set on buying a house but you don’t have enough savings for a deposit, don’t be disheartened as there are various low-deposit and no deposit home loans in the market that you could avail. Here’s a run down of your options:
Low Deposit Loans
It is still possible to receive loans up to the value of 95% of the purchase price. However, the loan amount and your credit history are going to strongly influence the decision of the bank. Further, the 5% deposit amount must be in the form of genuine savings and not a windfall gain or lump sum.
- Low deposit loans are usually not offered to investors but only to owner-occupiers.
- When you take a low deposit loan, you might be required to pay LMI or Lenders Mortgage Insurance that protects the lenders in case you default in payments.
- For a house worth $600,000, if you could provide cash deposit of $30,000 (5% of the purchase price), you could access a 95% loan of $570,000. 2% LMI on this amount would be $11,400, which could be added to the loan amount but would leave you hardly anything in equity if the property prices fall down.
No Deposit Home Loans or Guarantor Loans
It is possible to take a no deposit loan if your parents agree to use the equity in their property to guarantee your loan. This means that in case of default, the lender can foreclose your property as well as your parents’ property to make good the remaining payments.
While guarantor loans are particularly popular with first home-buyers in Australia, it is important to calculate your repayments before taking up a loan.
- Your parents may lose their house in case you default.
- You have to save some amount of money to cover the associated purchase costs such as application fee, administration fee and stamp duty.
Gifted Deposit Home Loans
An alternative to guaranteeing your loan, your parents could choose to gift you the deposit amount for your home loan. With a gifted deposit, some banks may even allow you to borrow up to 95% of the purchase price.
A gift letter from your parents or family member is usually required to prove that the amount received is actually a gift and not a loan.
Gift deposits from parents, siblings or spouse are easily approved but some further proofs may be required in case an uncle or a distant relative gifts the amount.
Feel free to contact the mortgage brokers at HashChing to check your eligibility for a gifted deposit home loan.
Though we advise you to try the other options first, it is also possible to have a third party finance your property purchase.
Under a standard vendor financing arrangement, a vendor will buy the house of your choice on his name and sell it to you at a higher price on instalments. You would be paying instalments to the vendor instead of a conventional bank, till you are eligible to apply for a standard home loan.
Another option is to rent the house from the vendor at a higher price and buy it later for a fixed price. Alternately, the vendor could finance your deposit to increase your chances of receiving a traditional home loan. In this scenario, you would be making repayments to both the lender and the vendor.
- Vendor finance is a risky option where you could end up paying up to 3% more interest than the ongoing rates. While it is an easier option if you are self-employed or don’t have a good credit history, it is suggested to keep this as a last resort.
- You might pay 10-20% more for the property than what the investor paid for it.
While the above options could help you buy a home early, misjudging your borrowing capacity or a sudden change in life such as sickness or losing your job could leave you high and dry.
Protect yourself by following some easy steps:
- Before you borrow, check whether you can afford the repayments at an increased interest rate (at least 3% p.a. more than current advertised rates). Check our borrowing capacity calculator to find out how much you can roughly borrow from lenders.
- Make extra repayments on your loan every time you receive a lump sum (tax refunds or an annual bonus). It is a good idea to open a savings account and save regularly to make scheduled extra repayments every year. Our extra repayments calculator can show you how much money you can save when you make extra repayments throughout your loan.
- Partially fix your loan if you are on a tight budget to plan your finances better. Our split home loan calculator can help you work out the repayments you need to make.
Plan well and plan ahead to increase your chances of approval. It is a good idea to have a clear credit history, regular savings and a stable job at least 6 months before filing for approval.