5 Options For Buying A House With No Deposit

Compiling a 20% deposit presents a barrier for many potential homebuyers.

In specific circumstances it may be possible to buy a house with a much smaller deposit or no deposit at all.

Can you buy a house without a deposit?

Traditionally, to buy a property in Australia you need a deposit of 20% of the property’s value, after which you can borrow the remaining 80%.

For some, saving that 20% figure is extremely difficult and may seem out of reach.

However, while it is not common, it may still be possible to purchase a property with no deposit, provided you meet a certain lenders’ criteria, which is assessed on a case-by-case basis.

How to get a home loan with no deposit

As the name suggests, a no deposit home loan is when you are able to secure a mortgage without any deposit, or cash savings.

The most likely of these scenarios is when you have a guarantor. A guarantor home loan is when someone you know (usually a relative) uses the equity in their existing property as security for your home loan.

For example, if you wish to purchase a $500,000 property, you would usually need a 20% deposit ($100,000) to avoid paying lenders mortgage insurance (LMI). If you have a guarantor, the lender may allow you to borrow 100% of the property’s value, as long as the guarantor’s equity covers at least 20% of the price. Once this 20% has been paid off, the guarantor is removed from the loan.

It’s important to note that this comes with substantial risk for the guarantor, as they will be financially responsible should you default on your mortgage.

Lending criteria/eligibility: A guarantor may help with the deposit, but your home loan application will still depend on other factors before it is approved, such as:

» MORE: What determines home loan eligibility?

Other options for buying a house with a low deposit

An important distinction to make is the difference between a no deposit or low deposit home loan. For prospective property buyers, even a small deposit (2-10%) may improve your chances of getting a loan as many lenders have products such as:

Lenders Mortgage Insurance: LMI is a one-off payment that is applied to those with a deposit of less than 20%. The payment insures the lender in the event that you are unable to repay your mortgage. You may be able to secure a mortgage with as little as a 5% deposit by paying LMI.
LMI waiver for high-income earners: A waiver may apply when a lender doesn’t charge LMI to a borrower due to their profession. High-income earners such as doctors or lawyers, for example, may receive an LMI waiver.
Rent-to-own schemes: A relatively new option, this allows a buyer to rent a property, with a portion of this rent going towards a deposit, after which you can buy the property for an agreed upon price after the lease expires. Rent-to-own (sometimes called rent-to-buy) schemes have attracted negative attention since coming onto the market, meaning it’s important to research and understand the process involved before committing.
Government schemes: State and federal governments offer grants for first home buyers. For example the First Home Guarantee Scheme and Family Home Guarantee (FHG) allow buyers to secure a home loan with deposits of only 2-5%.