13 Jan 2020

How to get a home loan when you have a small deposit

Getting a home loan means that you have to save up for a deposit. This is no small task, with the average home buyer’s deposit being 20% of the home cost. It can be challenging to save a full 20% of your home’s deposit, especially if you’re living in capital cities where the cost of living is particularly high. 

Thankfully, certain lenders, like Morgage House, have options for all budgets and lifestyles. Here are some options to think about when trying to secure a home loan with a small (sometimes zero) deposit.

6 options for getting a home loan with a small deposit

1. Get 105% of the property value with the backing of a guarantor

The 105% loan gives you more than you need because it factors in additional fees and costs involved in the home loan application. It means you don’t need any savings whatsoever, but you do need a guarantor who’ll bear all the risk if you happen to default on your loan.

2. Get 100% with no LMI and no need for a guarantor 

You could be eligible for a 100% home loan with no LMI, and no need for a guarantor. However, you must be an industry professional who holds a bachelor’s degree or higher, with a minimum of 3 years in the same industry (this doesn’t need to be in the same job). You also have to purchase an owner-occupied property; meaning that you can’t buy an investment property – you have to live in it.

3. Get 100% using equity from another property 

If you already own property, you can use your existing equity as a deposit for another home loan. If you have enough equity, you could be eligible for 100% of your home loan. At Mortgage House, we perform property valuations to let you know how much your house is worth. 

4. Get 95% with a gift as a deposit

Most lenders will allow parents to supply 5% to 15% of the house deposit as a non-refundable gift. This is a common option, with around 60% of first home buyers receiving a helping hand from parents or relatives. 

5. Get 95% with a personal loan as a deposit

If you have a small deposit, but a high income; you could be eligible to borrow up to 95% of your home loan. two caveats include: 1) you can’t have more than $10,000 in debt, and 2) You must have a clear credit history. 

6. Use your superannuation 

Australians can apply to withdraw their voluntary super contributions from 1 July 2017, till the present financial year, specifically for the use of a home deposit as part of the First Home Super Saver (FHSS) scheme. This helps individuals who are struggling to set foot in the housing market due to the rising costs of entry. 

There are some rules to be aware of:

  1. You can only withdraw voluntary contributions after 1 July 2017.
  2. You must intend to live in the property you’re about to buy.
  3. You may purchase an investment property, so long as you live in the property for 6-months. 
  4. You can only contribute a maximum of $15,000 per year, with a total contribution limit of $30,000 – however, if you’re buying a house with a friend, you can both contribute $30,000 each for a maximum of $60,000. 

What is a guarantor

A guarantor is someone with an existing property, who signs an agreement to say that they will be responsible to pay back the entirety of the loan if the borrower fails to make repayments. Often, people will get their parents to sign on as a guarantor.

It’s important to note that if a guarantor wants to use their property as leverage, they can, so long as their LVR is 80% or lower. Once the buyer feels like they have more stability in their income and finances, they can opt to remove the guarantor. This generally happens when the borrower has paid off around 20% of their loan.

It’s important to know that the more your lender lets you borrow, the higher the interest rate will be. This is because the lender is actively taking on greater risk by taking on borrowers with smaller deposits. A general rule of thumb to keep in mind is the smaller your deposit, the more rigid the rules are for applications and repayments. 

Want more information?

Speak to a Mortgage House lender today and find out how they can help you secure a home loan when you have a small deposit. 

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?’

Mortgage House 

At Mortgage House, we’re no strangers to the first homeowner’s journey. If you’re thinking of applying for your first home loan, you can Apply Online today to get started!

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