Is it possible to purchase a home with no deposit?
If you’re a first home buyer struggling to save a deposit, you may be able to borrow the entire purchase price of a property from some lenders if you meet certain conditions, such as having a family member guarantee your home loan. That being said, no deposit home loans are pretty uncommon, and you’ll generally require a minimum 5% deposit to qualify for a home loan. If this is the option you choose, you’ll most likely pay Lenders Mortgage Insurance (LMI) to cover the lender’s risk in case you’re unable to make your home loan repayments in future.
LMI is an insurance policy that covers the mortgage lender against any potential losses if you cannot make your home loan repayments. You can either pay the LMI costs upfront to your lender or add the amount to your home loan. If the LMI amount is rolled into your mortgage, you’ll pay interest on it just like the rest of your home loan.
Depending on the size of your loan and the property you’re buying, LMI can run into thousands of dollars, adding to your house buying costs. Whether you choose to pay LMI or wait for a few more years to save a larger deposit is a choice only you can make. Meanwhile, also consider the following options if you plan to buy a home with a low deposit (or no deposit) and don’t want to pay LMI.
- Seek help from the “Bank of Mum and Dad”
The Bank of Mum and Dad can help you put up a sizeable deposit by gifting you the money you need. This is known as a gifted deposit, and most lenders will accept it as part of your initial down payment for the home. However, you’ll still have to demonstrate at least 5% genuine savings in addition to the gifted deposit to qualify for a home loan. If you’re renting a house, some lenders may waive off the genuine savings requirements if you can provide proof of timely rental payments made over a year or more.
If you’re using a gifted deposit to purchase a home, make sure to keep a paper trail to substantiate the gift. You can have a declaration signed by your parents stating that the money is gifted, which implies you’re not expected to repay the money.
- Ask a family member to guarantee your home loan
Some lenders may let you borrow up to 100% of the property value if you have a family member guaranteeing your home loan. However, if you fail to make your repayments, your parents (or any other family member guaranteeing the loan) will be liable to pay on your behalf.
- Apply for First Home Owners’ Grant (FHOG)
If you’re a first home buyer, you may be eligible for FHOG in your state to boost the size of your deposit. The scheme was rolled out in 2000, and you must fulfil the required criteria in your state to be eligible for the funding. Visit the First Home website for the latest information on FHOG.
- Have the government guarantee your home loan
The First Home Loan Deposit Scheme is essentially a government guarantee that lets you buy your first home with a 5% deposit and no LMI. However, the guarantee is limited to 10,000 first home buyers in a year with an income cap of up to $125,000 per year for individuals or $200,000 per year for couples.
Another extension of the scheme is the Family Home Guarantee that enables eligible single parents with dependants to purchase a house with just a 2% deposit and no LMI.
It’s worth remembering that a government guarantee is different from a government grant. While you don’t have to repay the amount you receive under FHOG, the First Home Loan Deposit Scheme is only a guarantee. It enables you to borrow money for your first home with a low deposit, increasing the overall size of your borrowing. However, irrespective of your loan size, you’re required to repay the money in a limited time frame of 30 years or less. Therefore, it’s important to calculate your monthly repayments before borrowing a larger percentage of the property’s price to avoid mortgage stress.
