Compare low deposit home loans

LVR, meaning loan to value ratio, refers to the minimum deposit size you must have to secure a loan. The majority of home loans have a maximum LVR of 80 per cent, meaning you need to pay a 20 per cent deposit on the property; however, home loans can have a maximum insured LVR of 80 per cent or higher. If it’s a maximum insured LVR of 90 per cent or 95 per cent, then it’s a low deposit home loan. 

To put it in perspective:

• A loan with a maximum LVR of 80 per cent and a maximum insured LVR of 80 per cent equates to a 20 per cent deposit. This is not a low deposit home loan.
• A loan with a maximum LVR of 80 per cent and a maximum insured LVR of 90 per cent means you can get this loan with a 20 per cent deposit (and pay no LMI) or a 10 per cent deposit (and pay LMI). This is a low deposit home loan.

People sometimes assume it’s not possible to buy a home in Australia when you’re on a low income. But if you get the right deal, then home ownership can work out cheaper than renting and make it easier for you to support yourself independently in the long term, even if you don’t earn much from your job.

While your employment earnings are the main factor lenders use to work out what home loan repayments you can afford, they may also consider other income sources when you enquire about a home loan, such as Centrelink payments and other government payments. If you receive a pension, have a small inheritance, receive royalties for creative work or have rental income coming in from another property, these can all count.

You will need to provide documentary proof of all your income and three to six months’ worth of bank statements so the lender can be clear on exactly how much income you have at your disposal once your living expenses are taken into account.

Income isn’t all of what lenders consider when you make a home loan application. If you have good credit, you’ve shown that you can stick to payment plans in the past and you have low monthly outgoings, they may be very happy to have you as a customer.

If you don’t have a big deposit that allows you to pick and choose any property you want, there are options available to secure a place with what you have. These include:

• Going for something smaller: Properties with less square metres can be have a lower valuation and purchase price, so you could consider a smaller property or an apartment
• Looking in the outer suburbs: the most expensive suburbs are often the ones closest to the city centre, so it’s worth considering options that are a bit further away to get the most bang for your buck
• Go regional: properties located on the outskirts of cities are less expensive to invest in and you can get a lot more for your money.

If you only have a low deposit, and it’s not conducive to getting you the outcome you desire, there are other options to consider.

A guarantor home loan is when family members, or potentially someone close to you, ‘guarantees’ the loan (or, in other words, has the responsibility of paying back the loan if you can’t). A guarantor usually has to offer equity as security for part or all of your mortgage.

You can apply for a guarantor home loan through a mortgage broker.

As the name suggests, a joint home loan is when you take out a loan with someone else, such as a partner, family member or friend. While a joint home loan minimises costs, there are important factors to consider including who you buy with, how many people you buy with, the structure of ownership, and how you will handle disputes.

Joint home loans can be secured through mortgage brokers.

If you don’t have enough money to make a 20 per cent deposit on your desired property, saving up for longer is always an option. 

Some tips for putting money aside for your future property include: setting a budget and savings target; using a higher interest savings account; automating your savings; investing; and reducing debts where possible.

You also have the option of taking out a personal loan. Considering that you are essentially borrowing your home deposit, a personal loan will rack you up a higher debt and set of repayments (which will tarnish your credit score if you don't pay on time). A personal loan will also influence your borrowing power for a mortgage. 

Taking out a personal loan for a home deposit is therefore a risky route to take, and it’s repercussions should be seriously considered by buyers.

If you're a first home buyer buying property as an owner occupier, you may be able to apply for your state or territory's first home owners grant (FHOG), which may help to supplement your savings to make up your deposit.

We understand it can be tricky to get your head around low deposit home loans, and the different costs and options out there. A mortgage broker can guide you through how it all works, the different loan products and your deposit options; they can also ensure your budget and financial goals align with your chosen loan and negotiate with the lender to best use the savings you have now and will have later.

When you enquire with a mortgage broker they can:

• Look at your personal finances and help you work out whether a low rate home loan is the best choice for your financial situation
• Help you work out if you’re eligible for the first home loan deposit scheme (FHLDS) or the first home owners grant (FHOG)
• Calculate the upfront costs of a low deposit home loan, including the deposit, LMI, fees, and other charges, so you know how much saving you still have to do
• Recommend lenders that offer low deposit home loans with features and benefits that may suit your financial situation
• Negotiate with lenders on your behalf to help you get an even better deal on loan products
• Help you navigate the loan application process.

Getting help from a mortgage broker is a pretty safe bet as it shouldn’t cost you any extra—the  majority of mortgage brokers in Australia are paid commissions by lenders, rather than charging fees to their clients.