With Australia’s property market increasingly becoming more competitive and with prices rapidly climbing, home ownership is seemingly out of reach for many.
The biggest barrier for most individuals seeking to buy a home is without a doubt the deposit.
Most lenders expect you to have between 10% – 20% of a property’s value saved before they will even consider approving finance.
For renters battling continued and often excessive rental increases alongside rising property prices, saving such a large amount can feel impossible.
However, there are ways to overcome the need for a deposit and escape the cycle of renting.
In this guide, we’ll walk you through how to buy your very own home with no deposit, so you can wave goodbye to renting forever.
Can You Really Buy A House With No Deposit?
Yes, while there are of course conditions applied and criteria to be met, it is indeed possible to purchase a house without a deposit.
While not everyone will qualify for a no-deposit loan, it can still be a great option for many who are struggling to save but can demonstrate a capacity to service a loan.
What Is A No Deposit Loan?
As its name suggests, a no-deposit home loan is where you need no deposit and are able to borrow 100% of the property price.
While many lenders may advertise no-deposit loans, there are very few true loans of this nature available anymore. This is in part because they represent such a risk for the lender.
More common are low-deposit loans, these typically require the borrower to have between 5% – 10% of the loan amount saved as a deposit.
Both no-deposit and low-deposit loans come with strict lending criteria and are only approved on a case-by-case basis.
Expect your lender to do a comprehensive risk assessment if pursuing one of these loan types and be prepared to provide plenty of documentation.
Who Is Suited To A No-Deposit Home Loan?
No-deposit home loans are well suited to people from all different walks of life, but especially first-home buyers.
Anyone already in the property market already has an asset with equity to leverage to their advantage. First-home buyers often struggle to save a deposit due to expensive rental prices and the rising cost of living.
The option to buy without a deposit makes it easier to overcome this issue, but it is not without its challenges.
Types Of No-Deposit Home Loans
There are a few options available for those without a deposit including:
Guarantor Home Loan
If you have a trusted family member such as your parents, grandparents or siblings who own property in Australia with significant equity, a guarantor loan may be an option.
Using 20% of the guarantor property as security for the loan, you can often borrow up to 100% of the property price.
This does not change the guarantor’s repayments in any way but can cause significant financial issues for them if you default on your repayments. It is important to ensure that your guarantor fully understands and accepts this risk.
Once you have paid out 20% of the debt you hold for the property it is possible to release the guarantor from the loan arrangement. This can also occur if your property value increases and gives you more equity.
Equity Home Loan
Only available to individuals who already own property, this option sees you using the existing equity in your current property as a kind of deposit for a new one.
So long as your property is worth more than you owe on it, you can draw down on your mortgage to fund additional investing.
This method means you do not need to save up a deposit, but relies on you already owning a home. Once set up, it also will see you paying two mortgages simultaneously.
What Is The Lending Criteria For A No-Deposit Home Loan?
Just as with any loan, your lender is going to do a deep dive into your financial situation. They do this to ensure you are capable of meeting the loan repayments.
You will need to be able to demonstrate that you have a solid financial situation. This means:
- Having a good credit history and credit score. Multiple credit cards with various balances or unpaid bills can severely damage your credit health.
- Being able to show that you have stable employment with an income sufficient for covering your existing costs in addition to the loan repayments.
- If you are going down the guarantor route, your guarantor’s property must have sufficient equity to back the loan.
If for any reason you are declined from applying for a no-deposit loan, don’t lose hope, there are still some alternatives available.
Low-Deposit Loans And Government Home Loan Schemes
As briefly touched on above, there are also low-deposit options in Australia. These are often just as involved as a no-deposit loan to apply for, but help is available.
The government currently has in place two schemes intended to make buying easier for those struggling to save a deposit.
First Home Owners Grant (FHOG)
Aimed at assisting first-home buyers, this grant provides funding towards the purchase of an existing property or the building of a new home. This amount is between $10,000 – $20,000 depending on the state in which you reside and the type of property you purchase.
In most states, Western Australia included, eligibility for this grant includes property price caps and may only be available for new home builds.
If eligibility criteria are met, this funding can be counted towards your deposit, but in most instances, will not be enough to meet the 10% – 20% deposit most lenders require.
However, if you have some funds saved already, this might be all you need to get your deposit up to the required amount. Additionally, first-home buyers benefit from reduced stamp duty or an exemption altogether depending on the location and the specifics of the property in question.
Family Guarantee Home Loan
If you are a single parent with no property in your name, care for at least one child under 18 and earn a taxable income of no more than $125,000 annually, you may qualify for this scheme.
Known as a Family Guarantee, this option sees the government cover 18% of a home deposit with the other 2% to be paid by the purchaser. You can learn more about this scheme here.
Pros And Cons Of No Deposit Loans
It is easy to get excited about the prospect of owning your own home and being able to skip the stress of saving for a deposit.
There are indeed many positives related to no-deposit loans, but just as equally, there are some watchpoints to be aware of too.
You should carefully consider whether this is the right option for you and we strongly advise speaking with an accredited mortgage broker or financial advisor first.
- You skip trying to save a large enough deposit amidst ever-increasing property prices.
- You can enter the property market sooner and be paying down your own mortgage instead of someone else’s.
- You avoid continued property price increases and take advantage of favourable market conditions when they arise.
- Ideal for young and first-home buyers with limited savings but a good financial history.
- Makes it possible for your parents or other family members to help you buy property without the need for access to physical funds.
- If done via a guarantor loan, expensive Lenders Mortgage Insurance (LMI) can often be avoided.
- Your loan amount is higher and therefore your repayments are too. This can cause greater stress during rate rises.
- Any home buyer who does not have a 20% deposit is required to purchase Lenders Mortgage Insurance (LMI). This protects the lender against you defaulting on the loan and is calculated at around 20% per cent of the loan amount.
- These loans can be less competitive and some lenders will levy a higher interest rate on no-deposit loans due to their high risk nature.
- The approval process can be quite involved and require more documentation than a standard deposit loan.
- A guarantor loan, if defaulted on, could see your guarantor placed in a precarious financial position.
Other Costs To Consider
Alongside a deposit, there are additional costs to cover when purchasing, including:
- Stamp duty
- Home loan application and service fees
- Moving costs
- Conveyancing fees
In some cases, these costs may be covered within your borrowed funds. This will largely depend on how much borrowing capacity you have and the conditions set by your lender.
Where this is permitted, it is entirely possible to buy a home without having any deposit or savings at all.
Little Or No Deposit? Stop Renting Perth Are Here To Help
With decades of experience supporting everyday Aussies to enter the property market, our team offers expert advice regarding buying your first home.
We recognise that it is almost impossible to save an adequate deposit in the current economy and seek to eliminate this barrier for our clients.
Offering upfront, honest and practical advice, our client testimonials attest to our success in doing just that.
Find out if you qualify for one of our house and land packages around Perth and enjoy owning your own home sooner. Contact Stop Renting Perth today at 0402 513 446.