Compare 5% deposit home loans (95% LVR)

A 95 per cent LVR home loan is a type of low-deposit home loan where you are only required to put 5 per cent of the total purchase price towards a deposit.

What is LVR in a home loan?

‘LVR’ is an acronym for 'loan-to-value ratio' or 'loan to valuation ratio', which refers to the loan amount you are borrowing, represented as a percentage of the property's value. When a lender looks at how much you want to borrow in your loan application, they will compare their own valuation of the property to how much of a deposit you can put down.

Many standard home loans in Australia have an 80 per cent LVR, meaning they require a 20 per cent deposit. There are other types of home loans available for owner occupiers and investors, including 70 per cent LVR home loans that require a 30 per cent deposit, 90 per cent LVR home loans that require a 10 per cent deposit, and 95 per cent LVR home loans that require a 5 per cent deposit.

Any mortgage offer with an LVR higher than 80 per cent can generally be considered a low deposit home loan. A 5 per cent deposit may be the lowest deposit you will commonly encounter.

It may still be possible to buy property with a deposit smaller than 5 per cent, though you’ll likely require assistance from a guarantor and/or from government support programs.

While most home loans expect a deposit of at least 20 per cent of the property value, it is possible to get a mortgage with just a 5 per cent deposit.

A variety of Australian mortgage lenders offer home loan options for borrowers with smaller deposits, which could allow you to enter the property market sooner and with less savings. These mortgage offers are often called 95 per cent LVR home loans, as you’ll have a Loan-to-Value Ratio of 95 per cent.

It’s important to remember that having a smaller deposit may still mean paying extra costs. Buying a property with a 5 per cent deposit may mean paying more in Lender’s Mortgage Insurance (LMI), and the interest rate you're offered may be higher than if you had a deposit of 20 per cent or more.

However, seeking out assistance from a guarantor and/or from government support programs may be able to help you buy a home with a low deposit without paying too much in extra costs.

Some of the potential advantages for borrowers taking out a 95 per cent LVR home loan include:

• Entering the property market quickly: Because you only need a 5 per cent deposit, you can take out a loan and buy a home faster than waiting to save up the standard 20 per cent deposit of genuine savings.
• Easing short-term financial pressures: If you want to buy a home but saving a lump sum for a deposit isn’t feasible in the short term, a 95 per cent LVR home loan could temporarily relieve some of the financial burden.
• Taking advantage of low interest rates: You could be able to enter the property market when favourable interest rates are available even if you don’t yet have enough money saved for a standard 20 per cent deposit.

There are a few important risks to consider when looking for a mortgage with a 5 per cent deposit:

• Lender's Mortgage Insurance (LMI): LMI is an insurance policy required by most lenders if a borrower has a deposit of less than 20 per cent. It covers the lender (and not the borrower) if the borrower defaults on their home loan repayments. Most lenders pass on the cost of LMI to the borrower. This can potentially add tens of thousands of dollars to your home loan's upfront costs - the higher the LVR, the more you may need to pay for LMI. 
• Fewer home loan options: Not every lender offers 95 per cent LVR home loans, as most lenders consider these loans riskier than mortgages with LVRs of 80 per cent or lower. You may have fewer mortgage lenders to choose from if you have a low home loan deposit.
• Higher interest rates and/or fees: Generally, the higher your LVR, the higher the interest rate and/or fees you may have to pay on your mortgage. This is because lenders often consider these loans riskier than lower LVR mortgages.

Home loans with a 95 per cent LVR typically have similar features to other types of home loans, but the associated rates and fees may differ. For example, a lender might choose to offer a lower interest rate to customers who can put down a larger deposit.

Aside from the interest rate and deposit amount, though, here are some of the other common features to consider:

• Fixed rate or variable rate home loan: You can usually decide whether to lock in an interest rate for a set period or have a variable interest rate. Remember to also check the comparison rate, which indicates the loan's overall cost, including interest and standard fees and charges.
• Repayment options: Some lenders will allow you to make additional repayments above the minimum, so you can pay off your loan faster and avoid interest.
• Redraw facility: Some home loans come with the option to redraw additional repayments you’ve made if you need the money down the track.
• Offset account: You may be able to have a bank account linked to your home loan, known as an ‘offset account’. Your lender attributes your account balance towards your loan so you only have to pay interest on the difference.
• Loan term: Usually, the term for a home loan is 25-30 years.

There are also options available to receive additional support when applying for a low deposit home loan, such as:

• First home owners grants (FHOGs): Eligible first home buyers may be able to apply for a grant to go towards the deposit on their first home. Contact your state or territory government for more information, including the eligibility requirements. 
• First home loan deposit scheme (FHLDS): This Australian government program from the National Housing Finance and Investment Corporation (NHFIC) allows first home buyers to purchase a property with a mortgage from a participating lender with a deposit of just 5 per cent, without having to pay for LMI. A limited number of scheme places are available each financial year, and both the borrowers and the property being purchased will need to satisfy eligibility criteria, such as property price thresholds. 
• First Home Super Saver Scheme (FHSSS):This program allows you to make extra contributions to your superannuation fund and withdraw up to $10,000 ($20,000 for couples) of these extra contributions to go towards your home loan deposit.

In the past, it was possible to get a 100 per cent LVR home loan, also known as a no deposit home loan. However, ever since the Global Financial Crisis (GFC), no deposit home loans have become much rarer, with most banks and mortgage lenders no longer offering them.

It may still be possible to buy a property while paying no deposit. However, you may need the help of a family guarantor to guarantee your loan with the value of their own equity. Government support programs may also be able to contribute towards your deposit and/or help to guarantee your low deposit loan so you won’t have to pay for LMI.

Whether you’re buying your first home or an investment property, it’s handy to have help available before you enquire about a 95 per cent LVR home loan. 

Mortgage brokers are home loan experts that may be able to help you work out which mortgage lenders offer home loans that may suit your needs, that are available with a 5 per cent deposit. They can also manage your home loan application and help you access grants and other support services to make your buying journey easier. 

You can quickly compare mortgage brokers in your area at RateCity, so you can take advantage of their experience and local knowledge.