Is it possible to get a personal loan for a house deposit?

While technically possible, using a personal loan for a house deposit is not always straightforward. Lenders in Australia typically prefer deposits to come from genuine savings rather than borrowed funds. If you take out a personal loan for your deposit, some lenders may reject your home loan application due to the increased financial risk.

Additionally, personal loans often have higher interest rates than home loans, meaning you could end up paying significantly more in the long run. The added debt also affects your borrowing power, potentially reducing the amount you can qualify for in a mortgage.

If you’re struggling to save enough for a deposit, consider these alternatives:

1. Saving for longer

If possible, delaying your home purchase by a year or two can help you build a bigger deposit. You may even qualify for a lower home loan interest rate, reducing your overall costs. Saving longer also means you could avoid Lender's Mortgage Insurance (LMI) by reaching a 20% deposit. Additionally, consider the total cost of homeownership, including upfront costs, repayments, and ongoing expenses, before making a decision.

2. Government schemes

Australia offers several first-home buyer programs designed to help with deposits. If you're eligible, these schemes can either boost your savings or allow you to buy with a smaller deposit, potentially avoiding LMI and reducing upfront costs.

• Home Guarantee Scheme (HGS) – The HGS includes the First Home Guarantee (FHG), which allows eligible buyers to purchase with as little as a 5% deposit without paying Lenders Mortgage Insurance (LMI). It also includes the Family Home Guarantee, which supports eligible single parents with a deposit as low as 2%.
• First Home Owner Grant (FHOG) – A one-time grant available in some states for first-home buyers purchasing a new property.
• Stamp duty concessions – Many states offer discounts or exemptions on stamp duty for first-time buyers, helping reduce upfront costs.

3. Borrowing from family or friends

A family gift or loan can be a more flexible and cost-effective alternative to a personal loan. Some lenders even accept a family guarantee, where parents may offer their property as security to help you avoid LMI.

If you’re considering a personal loan for a house deposit, lenders will assess the following factors:

1. Credit score and history

A strong credit score can help improve your chances of approval. Lenders will check your repayment history, outstanding debts, and any defaults. A lower credit score could mean higher interest rates or outright rejection.

2. Repayment capacity

Lenders review your income, expenses, and financial commitments. They may assess up to six months of bank statements to ensure you can handle additional debt alongside your mortgage repayments.

Using a personal loan for a house deposit can make homeownership more expensive and challenging. Many lenders prefer deposits to come from genuine savings, and some may reject applications where funds are borrowed. Even if accepted, taking on additional debt means managing two loan repayments, which can strain your finances. Personal loans often have higher interest rates than home loans, further increasing costs.

Using a personal loan for a house deposit is typically not a preferred choice for people who plan to apply for a home loan, as it is both expensive and creates an additional debt burden. Given not every lender accepts personal loans as deposits, it’s worth investigating before going down this path.