Before they can get on the property ladder, many aspiring homeowners save up for a deposit. It is also the most challenging step as the deposit amount, typically pegged at 20% of the property’s value, can easily reach six figures – especially with current home prices on the rise.
It could take many years for an average Australian to increase this amount. It doesn’t take much money to save enough for a deposit in order to purchase your home.
Can a house be bought without a deposit?
It is possible, but it is not simple. Because of the risk, traditional lenders won’t approve home loans without a deposit. Some specialist lenders can offer 100% home loans. These lenders often require very stringent eligibility criteria and higher interest rates.
The best option is a loan with a loan/value ratio (LVR), 95%. A deposit of at least 5% will be required. LMI (lender mortgage coverage) may be required for these types loans.
Do you qualify for a home loan with no down payment?
To reduce risk, lenders place strict restrictions on borrowers applying for 100% LVR home loans. These restrictions may include:
- Near-perfect credit scores can be obtained from one of the major credit reporting agencies.
- An excellent repayment history
- Stable income source that can last at least three years consecutively
- A minimum annual salary for singles is $150,000, or $180,000 for married couples.
- You must purchase a standard property type (house, townhouses or units or vacant land) in major metropolitan areas, capital cities or regional centres.
How can you get a loan to your home without depositing anything?
Even if your savings are insufficient, you can still obtain a loan for your home. These are just some of the options you have:
1. To secure your loan, you will need guarantors
Guarantors can be a great way for you to get a loan without any deposit. A home loan guarantor is an immediate family member, often a parent or a sibling – although uncles and aunts are allowed in some instances – who has agreed to take responsibility for paying the loan if the borrower fails to make repayments. Equity from guarantors may be used to secure the home loan. Some lenders offer guarantor loans of up to 105% of the property’s value to cover for additional expenses such as stamp duty and application fees.
2. Different government grants are available.
To help pay the deposit, there are a number of incentives that state-based homebuyers can take advantage of. First Home Owners Grant is a cash grant which covers the purchase of a home. You can also use it to make a deposit.
First-time buyers have the option to receive a government incentive called First Home Loan Deposit Scheme. This allows first-time buyers to buy a property for as low as 5% deposit, and they don’t have to pay LMI. The program is limited to 10,000 borrowers per financial year. However, buyers who qualify for 2020/21 fiscal year are allowed to apply for 10,000 additional spots.
Combining these cash grants is possible. The big question is how much cash you can raise to make a deposit, given the limitations on these subsidies.
3. Equity in your property
An existing mortgage equity can be used to pay down a loan on a second home. This strategy is often used by investors to generate passive income.
4. Receive a huge financial gift
Some lenders will allow borrowers to deposit large amounts that they have received from close friends or family. Deposits that are made up of real savings will not be accepted by some lenders. The savings must be your own.
You might be able to buy a home faster if you save money for a down payment, but it’s best to wait until enough is saved before you decide to make the move to homeownership. You will be better able manage your finances and reduce your chance of defaulting on your mortgage. You also have a greater chance of getting approved to your home loan.