How to Buy a House With a No Deposit Home Loan?

Wondering how to buy a house without a deposit? There are 2 ways you can get a no deposit mortgage in Australia:

• Guarantor Mortgage.

• Using your equity in another property.

Getting a home loan without deposit is tempting, especially since property values are soaring and lenders require you to deposit 20% of the home’s value.

But thankfully, you do have the option to buy a house on a no deposit home loan. It helps a lot since saving up for a deposit, especially in today’s economy, is a nightmare for many Australians.

We’ll cover everything about no deposit home loans in this guide, how you can get one, and more.

Understanding No Deposit Home Loans

Let’s start by understanding home loans with no deposit.

Traditional mortgages usually require you to pay 20% of the home’s value as a deposit. Anyone unable to afford this can speak with the bank for a lower deposit, but at the cost of having to pay for LMI. Rather than having to pay such a heavy amount upfront, you can instead pay for LMI in monthly instalments to make the deposit lower.

But this is where no deposit home loans come to play. It helps you avoid the deposit, while still not having to pay for LMI.

It’s a tremendous help, especially to first-time buyers who struggle to save or want to set foot in the home loan market as soon as possible.

However, bear in mind that no deposit mortgages are not very common across Australia. And they do come with a list of disadvantages. 

Low-deposit home loans are much more common, which we'll discuss later in this guide.

Pros and Cons of a No Deposit Mortgage

So, getting a home loan without deposit comes with a fair share of advantages and disadvantages. Let’s take a closer look at them.

Pros:

• Allows you to enter the home loan market with zero deposit, eliminating the need for any substantial savings.

• Allows first-time buyers to get a mortgage sooner, helping them become homeowners without having to wait for months or years.

• Helps you lock in on the current market as soon as possible, eliminating the potential for a rise in property prices or interest rates.

Cons:

• Interest rates are usually on the higher side since the bank risks more without taking a deposit.

• The process and paperwork involved are usually lengthy and complex as compared to standard home loans.

• Not all lenders offer no deposit home loans, so you’ll have to do some extensive research.

• Some lenders impose lower borrowing capacity since they risk more without a deposit.

• Higher risk of negative equity on the purchased property since you start with no equity.

The 2 Ways to Get No Deposit Home Loans

Home loans with no deposit are not very common in Australia. However, you do have a few options, but you’ll have to do some deeper hunting to find any of the small number of lenders that do provide them.

That’s where Koalify comes in as your expert online mortgage broker. At no extra cost, we’ll help you find the right mortgage with the right lender to meet your unique home buying needs.

We strive to serve impartially and in your best interests, guiding you with a highly personalised service that makes your mortgage process easier and faster.

Want to find home loans that fit your needs? Get in touch with us today for the offers.

Guarantor Mortgages

One of the best options to get a no deposit mortgage is to look for a guarantor mortgage. This type of mortgage allows you to bring in a family member or friend to act as a guarantor, helping you secure your loan with their property or savings as well as your new property.

This does lower the interest rate for you, but puts the guarantor in a significant financial risk. However, the guarantor can be removed from the loan once you repay the guaranteed portion of the loan or when the debt level falls below 80%.

A few things to note when bringing in a guarantor:

• The guarantors must have equity in their property

• Guarantor should be working, or is a self-funded retiree (government pension not applicable)

• Guarantor's property must be in Australia

Using Equity in Another Property to Get No Deposit Home Loans

Do you have equity in another property? You can use that as security to buy a house on a home loan without deposit.

Although this is possible, it’s important to keep in mind the fact that your equity in another property is only one of the factors that lenders look at to verify your eligibility. Their primary concerns are your salary and ability to afford a loan, so make sure you are in good financial standing.

Alternatives to No Deposit Mortgages (Low Deposit Home Loans)

Your options for a no deposit home loan are limited. And not all lenders provide this option, thus necessitating a thorough search for the ideal lender.

Since it all comes down to saving on the deposit, you can still look into low-deposit mortgages. Although they don’t guarantee zero deposit, you can essentially cut your deposit to as low as 2%.

And comparatively, more lenders offer low deposit mortgages, so accessibility is even better.

Home Guarantee Scheme

The Home Guarantee Scheme (HGS) is an initiative by the Australian Government to help eligible Australians own a home sooner. This guarantee scheme has three different programs, each designed to cater to different groups of Australians.

• First Home Buyers: This scheme assists homeowners who haven’t owned a property or land in Australia in the past 10 years with up to 15% of the deposit.

• Single Parents: Helps eligible single parents or single legal guardians to purchase a home sooner with a deposit as low as 2%.

• Help to Buy: The government will contribute up to 30% (existing homes) or 40% (newly built homes) of the value of the home you’re looking to buy. In any case, you'd have to contribute a minimum of only 2% deposit.

Each program under the Home Guarantee Scheme has different eligibility criteria, so make sure you refer to the official website.

LMI Waiver for Professionals

Did you know that professionals in select industries are able to get up to 95% LVR? This means they can pay deposits as low as 5%.

You can get this through the LMI waiver benefit offered by lenders to eligible homebuyers. LMI waiver basically means exempting you from having to pay LMI even if your deposit amount is lower. 

It’s currently available to professionals in fields like medicine, accounting, and law.

Pay LMI 

Another option is to pay LMI for lower deposits. Since LMI is the lender’s security for lower deposits, you can choose to pay that rather than having to put in the entire 20% deposit.

Tips for Getting Approved for a Zero-Deposit Mortgage

Even though getting a mortgage with no deposit is possible, you still need to make sure you have a decent financial background to increase your chances of approval. 

A good financial background is essential for any type of loan, but its importance inflates to a much higher degree when it comes to no-deposit mortgages.

Check Your Credit Score

The first thing lenders check for is your credit score. It clearly shows how good you are at managing debt and paying back on time.

Before applying, check your credit score. It has to be strong to secure home loan approval. On top of approval, a solid credit score also gives you more power to negotiate and secure favourable loan terms.

Manage Existing Debts

Lenders always want to see if you have manageable debt levels. 

Having too much debt to your name does not look good on paper, and you must make sure your debt is only an affordable percentage of your total income before applying.

It’s also a good idea to consolidate your debt if you have multiple sources to pay back to. 

Owing one lender with less debt is always better than owing multiple lenders with too much debt.

Stabilise Employment and Income

Having a steady income and stable job can easily prove your ability and capacity to pay back on time. They also use this to determine your manageable debt level.

If your job is stable and pays on time, and you can prove it with pay slips and an employment certificate, you’ll have a better standing with your application. It simply makes your lender more willing to consider approving the no-deposit mortgage for you.

Mortgage With No Deposit: Risks and Considerations

Getting a mortgage with no deposit comes with its own set of risks. That’s why we have these important considerations to help you foresee all the short-term and long-term challenges that come with it.

• Higher Interest Rates: A no-deposit mortgage usually comes with higher interest rates to compensate for the lack of security, which ultimately means higher monthly repayments.

• Negative Equity Risks: Since you start with no equity, you will end up owing your lender more than what your property is worth if it decreases in value in the future.

• Additional Fees and Conditions: No-deposit mortgages may involve additional fees such as LMI, application fees, legal fees, and more.

Homebuyers often overlook some of these risks and many more when hunting for a mortgage. That’s why it’s vital to work with someone experienced and knowledgeable about home loans so that you don’t lose money in the short term or long term.

That’s what Koalify does—we help homebuyers find the ideal mortgage with the ideal lender by providing unbiased, personalised guidance from start to finish. 

The best part? You don’t pay us a dime. We do the heavy lifting and offer expert guidance to help you secure the right mortgage at no extra cost. Explore the range of home loans you qualify for from 30+ top lenders across Australia. Contact us today to unlock your offers!

Mortgage With No Deposit: Frequently Asked Questions

Can I get a mortgage with a low credit score and no deposit?

Getting a mortgage with no deposit is possible if you have a guarantor or equity in another property.

However, having a low credit score means you are a risky borrower to the lenders, which decreases your chance of getting any kind of mortgage, let alone a no-deposit mortgage.

Are there any alternatives if I don’t qualify for zero-deposit mortgages?

Yes, you can consider low-deposit mortgages if you’re not eligible for zero deposit. You can pay as little as a 2% deposit with these low-deposit options:

• Home Guarantee Scheme (HGS)

  • First Home Guarantee (FHBG)

  • Regional First Home Buyer Guarantee (RFHBG)

  • Family Home Guarantee

• Shared Ownership Scheme

• LMI waiver for professionals

• Pay LMI to lower deposit

Will my monthly payments be significantly higher with a no-deposit mortgage?

This entirely depends on your lender and your financial background. Usually, mortgages with no deposit have a higher interest rate than standard mortgages, but your lender may increase it even further if your financial background is not very convincing. 

What if I don’t have family members to act as guarantors?

If you don’t have guarantors, your next best option is to access your equity in another property.

However, if you’re open to a mortgage with a low deposit rather than no deposit at all, you can try the alternative options to no-deposit mortgages in this guide.

Compare rates from multiple lenders

Let our home loan experts secure the most suitable deal for you

I want to refinanceI want to buy a home