Since the global financial crisis of 2008, banks have tightened up on lending restrictions, making it harder to borrow with a low deposit and effectively putting an end to no deposit home loans. While it is still possible to borrow with a low deposit – as little as 5% - how do you buy property with no deposit? Let’s take a look at your options.
No deposit home loans
It’s true that banks put an end to no deposit lending following the GFC, but there are still some lenders in Australia that will approve a 99.99% loan, provided you meet certain criteria.
This type of lending is determined on a strict case-by-case basis, and will largely depend upon you having a guarantor for your loan, for example, and meeting stringent requirements such as:
- You must have an impeccable credit rating with the main credit reporting agencies.
- You must show that you have repaid all of your current debts on time.
- You must have a stable income high enough to easily afford the repayments on your loan.
- You must be buying a standard property – a house, townhouse, unit or vacant land to build on.
- You must be buying in a capital city, major town, or major regional centre.
In all other cases, you’ll need to have saved at least 5% of the purchase price to qualify for a low deposit home loan. Regardless of the size of your deposit, there are certain up-front costs you’ll need to factor in – like stamp duty, legal fees and building inspections.
Raising a deposit
If you haven’t managed to save a deposit, there are a few ways you could raise a deposit. Some of these include:1. The First Home Owners Grant
Provided you meet the eligibility criteria, you may be entitled to receive a First Home Owners Grant from your state government. You’ll find all you need to know about this option in our recent blog post.2. Having a guarantor
If a family member is prepared to provide a deposit or co-sign your home loan as a guarantor, you may be able to borrow up to 100% of the property value. The family member will need to provide proof that they can afford to repay your loan if you fail to do so. Take a look at this blog post for more on this option.3. A monetary gift
If you’ve recently come into some money – through a gift or an inheritance – you could use this when buying a property. Be aware though, that most lenders will still require your deposit be made up of some genuine savings so you will need to make some effort towards saving your deposit. The lender may also require confirmation from the source that this gift is non-recourse.
Getting into the property market
For many first home buyers, the prospect of getting into the property market with a low deposit is more appealing than putting it off for several years while saving for a larger deposit.
It’s important you weigh up the disadvantages of buying a property with a low deposit – higher interest rates, lending restrictions, LMI – against the advantages – getting into the market sooner to avoid paying rent and beat rising prices – before making any decisions.
If you’d like advice around saving for a deposit, buying a first home, or securing a home loan with low deposit, get in touch with a Mortgage Express broker.
While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.
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