Can you get a home loan without a deposit?

Saving up for a deposit is one of the hardest parts about getting a foot on the property ladder. Most home loan lenders in Australia will require you to save at least a 5% deposit, with a guarantor often coming onto the loan to help boost the application.

However, there may be options to get a home loan with zero deposit or even borrow 100% of a home loan without a guarantor. Let’s explore how to get a home loan with little to no deposit.

How a deposit impacts your home loan application

There are a few reasons why home loan lenders look favourably on borrowers who save up for a deposit when they apply for a mortgage, including:

• It demonstrates a high level of financial responsibility, meaning the lender may assess that you’re at less of a risk of defaulting.
• Regulatory bodies, such as APRA, discourage risky lending practices. Lending potentially hundreds of thousands of dollars to an individual who hasn't been able to afford a deposit is considered risky.

Many Australian homeowners may be old enough to remember when applying for a mortgage with a 0% deposit was possible. However, the Australian Prudential Regulation Authority (APRA) cracked down on this lending model at the end of the 2000s. Then following the GFC, the notion of taking on such a large amount of debt with no deposit fell further out of favour, with no deposit home loans becoming impossible to find.

It’s important to keep in mind that this is for your benefit, not just the benefit of the lender. When making significant financial decisions you want to reduce any risk that you may miss repayments, default on the loan, or lose the asset.

A smaller deposit means you’re borrowing more from the bank, which in turn may see you paying thousands more in interest over the life of the loan. Plus, if you have a deposit under 20%, you will need to pay Lender’s Mortgage Insurance (LMI). This can climb into the tens of thousands of dollars range, depending on the size of your loan.

Also, home loan lenders tend to reserve their most competitive home loan rates to borrowers with loan-to-value ratios (LVRs) of 80% and under. Meaning, if you have a deposit of 20% or more, you may be more likely to be offered a lower interest rate than if you applied with a 5% deposit.

Can you get a 100% LVR home loan?

Taking out a home loan with an LVR of 100 may be possible, but it does involve jumping through some additional hoops. Here is how you may be able to nab a no deposit home loan:

• 100% LVR home loan with a guarantor

By having a guarantor come on to your home loan (generally a family member), you may be able to bypass saving for a deposit altogether. Many lenders may offer 100% LVR, even 110% LVR home loans if the borrower has a guarantor come on to the loan. A guarantor doesn’t have to offer up security (usually the family home) for the entire value of the loan. Typically, they help to secure the gap in a deposit to help the would-be borrower get up to the 20% mark.

• Use equity in existing property

Another option borrowers may want to consider is to borrow against the equity in an existing property. This would not apply to first home buyers but is one way that existing homeowners may be able to skip the step of saving for a deposit if they’re considering buying another property. Keep in mind that if you default on the new home loan, that equity may be claimed by the lender as it is being used to secure the new loan. This may result in you having to sell not one, but two properties.

• Speak to a broker

For many first home buyers, both options will not be possible, especially as not every young Australian can have parents acting as a guarantor on their no-deposit home loan. If you’re desperate to buy a property and want to know just what it would take to get your foot over the line, it may be worth speaking to a broker. A broker may not be able to help you get a 100% LVR home loan without a guarantor, but you may get some valuable advice on how to boost your application and be approved with a smaller deposit size.

Home loan deposit size benefits and risks

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