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How to get a home loan with a low deposit?

If you’ve been renting for a while, then it’s only a matter of time before you’ll start to think about owning your own home. Low deposit and no deposit home loans can be a great way to get into the market and stop paying off someone else’s mortgage.

Applying for these kinds of home loans is the same as any other mortgage, and our expert consultants can help you every step of the way. Whether you have a minimum deposit for a house, or you’re looking for no deposit first home loans, then we can help you find a suitable option for you and your family. We can talk you through any questions you have on how to get a home loan. For a lot of people, buying a house with no deposit or little deposit and going into mortgage debt for the first time can be daunting. It is a big commitment and something you can be tied into for a long time.

However, if you think about renting as helping someone else improve their property portfolio or credit rating, then looking around for the cheapest home loan can seem very attractive. On top of that, having to get permission from your landlord to make even the tiniest repair can get tiring. The flexibility of having your home exactly the way you like it can be motivation in itself. However, today’s cost of living pressures can make it hard to find the 20% house deposit most Australian banks and lenders usually require. If you don’t have the minimum house deposit, then that’s where Mortgage House’s low and no deposit home loans can help.

Our experts can talk you through all the options available, and a good place to start is our mortgage repayment calculator. That can give you a clear indication of how much your repayments may be, and help you budget if you are buying a house with or without a deposit. It may also help you answer the question: ‘How much deposit do I need to buy a house?’

What is a low deposit home loan?

Low or no deposit home loans are a way to get into the property market for the first time. Thanks to surging house prices, looking for the cheapest home loan that is still suitable for you and your family can be difficult. A low deposit home loan is a way to help you own a home in the current market without the large deposit most banks and lenders require. If you’re struggling with living expenses, then being able to find a minimum deposit for a house may be miles away.

At Mortgage House we can study your financial situation and help tailor a home loan exactly to your needs. This can help you invest in your future sooner and reap the benefits that building equity can provide. Depending on your financial situation, low or no deposit home loans may be a suitable option. Take into consideration the following advantages and disadvantages when you are looking for options that give you a minimum deposit for home loans.

Advantages

  • Allows you to get into the property market. While Australia’s property market is relatively stable, it can be hard to break into. Being able to take advantage of an opportunity as soon as it comes along is a big advantage of low or no deposit home loans. If your financial security increases or the house you have always wanted to buy comes onto the market and you don’t have a house deposit saved, then these kinds of mortgages can help you achieve your property goals.

  • Stop wasting money on rent. Paying a mortgage can be a great way to improve your financial situation. Not only do you work towards owning an asset that can be worth a lot of money, but you can also build up a healthy credit rating. If you’re paying rent, you’re helping your landlord pay off their mortgage, and not improving your credit rating for the future.

  • Start creating wealth. Buying a home, whether it’s with or without a house deposit, can help create more wealth. The more you pay back, and the longer you make repayments for, the more equity you can build up. Equity is the difference between the value of your home, and what you owe on your mortgage. It doesn’t matter whether you are buying a house with no deposit or a 20% deposit. The more you pay back, the more equity you build up in your home, which you can use to borrow against at a later date if you need it.

Disadvantages

  • Interest rates can be higher. Given the higher risk to banks and lenders of low or no deposit home loans, they can charge higher comparative interest rates. If a customer has a 20% deposit and defaults on repayments, then the bank is likely to get their money back if they sell the property. That may not be the case if their customer is buying a house with no deposit.

  • Mortgage insurance. As a result of the higher risk, banks and lenders can require customers to take out mortgage insurance. This can add to the cost of the loan and future repayments if you don’t pay it up-front.

Who is eligible for a low deposit home loan?

If you’re looking for a no deposit home loan, these kinds of mortgages can help, but you will still need to meet a number of requirements. The first is having a stable income. Whether you are looking for no deposit home loans, or you have access to the deposit most banks require, a reliable income and steady job is always preferred. A credit score is also a key part of how to get a home loan, whether you have a minimum deposit or not. Income and credit score will be two of the first things banks and lenders will investigate when you apply for low or no deposit home loans. Not a lot of people are aware of what their credit score is, or even how to check it.

  • What is a credit score? A credit score is a tally of all the data that exists on your credit file. Your credit file is where all your credit applications are listed. If you’ve ever applied for a credit card, mobile phone service, insurance policy or car or personal loan, it will be recorded on your credit file. If you default on any loans or have had any bankruptcies, they will also be recorded.

 

  • What do different credit scores mean? Your final credit score can be what determines whether or not you are approved for buying a house with no deposit. The higher the score, the better the credit rating you have. A higher credit rating supports your ability to meet your repayments when they are due. A lower credit score means you have a bad credit rating and suggests you may be at a higher risk of missing repayments and defaulting on your home loan over time. You may not be approved for the loan, or may only be approved for a lesser amount.

 

  • Where can I see my credit score? Your credit score is held by a credit bureau. They will have a record of all your credit movements, even if you have been approved for a loan. If you haven’t applied for credit in Australia you won’t have a credit file. It won’t cost you anything to obtain your credit file, and you can request it once a year, or within 90 days of applying for credit. There is a range of credit bureaus in Australia. Find out more here.

 

  • How can I improve my credit score? There are a few strategies that may help you improve your credit score, and increase your chances of being approved for low or no deposit home loans.

                       – Work on paying all your bills on time and in full

                       – Try to settle any outstanding balances you have.

                       – Try to not overdraw your credit cards

                       – Limit how often you apply for credit cards or loans.

Importantly, all companies have different scoring systems, and your final score may be based on more than just your credit file.

What are the repayments for a low deposit home loan?

Repayments for mortgages that allow you to buy a house with no deposit work the same way as home loans that require a deposit. Repayments for principal-and-interest loans are, as the name suggests, made up of both the principal amount you borrowed as well as the interest charged. Repayments early in the life of the loan are likely to be made up more of interest than principal, with the percentages reversing along the way. Working out what repayments may be for no or low deposit home loans is simple, thanks to our mortgage repayments calculator (below).

All you need to do is enter the required details such as loan amount, interest rate and loan period, as well as the type of loan you are looking for. From there, our repayment calculator will give you weekly, fortnightly and monthly repayment figures. We’ll also let you know how much of each repayment will be made up of interest, and how much interest you may pay over the life of the loan. Make sure all the information you enter is as accurate as it can be.

It’s important to remember the repayment calculator is only a guide, but it can give you a good indication to help you plan for your property goals. And don’t forget to look at the fees and charges of all low and no deposit home loans. A good way to be able to compare home loans equally is by looking at the comparison rate. All Australian banks and lenders are required by law to advertise a comparison interest rate alongside the marketed rate. Comparison rates are the best way to take into account all the fees and charges of a loan so that you can compare each one with more accuracy.

Calculator

The interest rate for the loan.
% p.a.
What is the length of time to repay the loan?
years
How much do you want to borrow?
$
What is the type of the loan?

Principal
& Interest

Interest Only

Your Repayments

  • Weekly
  • Fortnightly
  • Monthly

$1,798.65 per month

Important Disclaimer: This is intended as a guide only. Details of terms and conditions, interest rates, fees and charges are available upon application. Mortgage House’s prevailing credit criteria apply. Please note that your actual fortnightly repayment would be equal to the monthly repayment amount divided by two. Weekly repayments would equal the monthly repayment amount divided by four. If you choose to pay fortnightly or weekly, your actual repayments will be higher than repayments shown on this page. You can reduce the term of your loan if you choose to make repayments fortnightly or weekly. We recommend you seek independent legal and financial advice before proceeding with any loan.

What is the minimum deposit for a house?

All things being equal, banks and lenders would prefer a deposit of around 20%, but that is not a steadfast rule. Some have their own standard minimum amounts, and others may base it on a range of factors. These can include your credit history and any other assets you may own. Speak with our expert lenders to see how we can find a suitable low or no deposit home loan for you. One option may be to look at our family pledge home loans. A family pledge loan allows a family member with good equity to go as guarantor and pledge to support your home loan. That can enable you to borrow up to 110% of the property value, as long as the equity is strong enough. If you are looking for a family member to act as a guarantor, think about the following things:

  • Make sure they are a close family member. Banks and lenders prefer immediate family members, such as parents or siblings.
  • Ensure the equity is strong. Speak to us about whether or not your family member’s equity is strong enough to help you.
  • Check their credit history. Ask your family member for their credit score as an unsatisfactory score can cause banks and lenders to hesitate.
  • Choose someone the right age and nationality. Most Australian banks prefer Australian residents aged between 18 and 65 to act as guarantors.

However, if you are just starting out and thinking about saving for your own deposit, then our budget calculator can help you out. It allows you to put all your income and expenses into an easy-to-understand format and will provide you with a clear surplus figure, taking into account any regular weekly, fortnightly or monthly outgoings or incomings.

Calculator

Loan Details

The interest rate for the loan.
% p.a.
What is the length of time to repay the loan?
years
Will the loan be for yourself or joint with another applicant?

Yes

No

Any person who depends on you for financial support e.g. your children?

Annual Net Income

Your net income per year i.e. after tax
$
Your partner's net income per year i.e. after tax
$
Any other income you may receive each year e.g. rent from a property, interest on savings or dividends from shares
$

Monthly Expenses

Personal monthly expenses e.g. rent, bills, shopping, fuel etc.
$
Any repayments you have to make each month to cover your credit cards or other loans
$
Any other monthly expenses
$

Your Monthly Repayment

per month

You Can Borrow Up To

Important Disclaimer: This is intended as a guide only. Details of terms and conditions, interest rates, fees and charges are available upon application. Mortgage House's prevailing credit criteria apply. We recommend you seek independent legal and financial advice before proceeding with any loan. The Comparison Rate for each of the home loan products contained in this page is based on a loan of $150,000 over a 25 year term. Fees and charges may be payable.

WARNING: The comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. * This mortgage calculator shows indicative repayments based on 12/26/52 equal repayments for monthly/fortnightly/weekly options.