Compare low deposit home loans

How low deposit home loans work

A 20% deposit is the standard when buying property in Australia. But that's a tall order, especially when house prices are so high.

Low deposit home loans only require 10% deposits or even 5% deposits. This means saving less, borrowing more, and buying a home sooner.

But there is a catch. When your deposit falls below 20%, lenders charge you something called a lenders mortgage insurance (LMI) premium. This can add thousands of dollars to your property buying costs.

Is a low deposit home loan the right option for you?

Given how hard it is to save a 20% deposit, many buyers still go for low deposit loans even with the LMI cost added on.

You can enter the market faster when you buy with a low deposit

The lower your deposit, the quicker you can save it. If you're buying a property for $500,000, a 20% deposit is $100,000. A 10% deposit is $50,000 and a 5% deposit is only $25,000.

It's far more realistic and achievable to save up $25,000 than $100,000, so low deposit loans enable you to get on the property ladder sooner.

You can build equity faster and not worry about runaway prices

When property prices are rising fast, the amount required for a deposit grows in tandem. Jumping in early with a small deposit means you don't have to worry. Once you've got your foot on the property ladder, rising prices are good: You now own the asset.

And instead of building up a deposit you're now paying off a debt and building equity.

But low deposit home loans come with more costs

A low deposit home loan means you may have to pay an LMI premium. This cost can range from several thousand dollars into the tens of thousands, depending on your deposit size and the cost of the property.

You may also pay more interest with a low deposit loan, simply because you're borrowing more money. Let's look at a basic example using Finder's LMI calculator.

A low deposit loan can end up more expensive

Here's a simple example of 2 home loans with identical interest rates based on a $800,000 property and a 30-year loan term. The only difference is the deposit size. You can see how this changes both the loan amount (and therefore the repayments) and the LMI premium.

In this hypothetical example, the low deposit borrower pays $34,982.80 in LMI premiums upfront, and an extra $719 a month in repayments. This is because they have to borrow more money.

Over the life of the loan this adds up to $139,006 in extra interest. Adding the LMI in, the low deposit home loan works out to be $173,988.80 more expensive.

But that doesn't mean the low deposit option is a bad idea

Choosing a low deposit home loan can still be worth it. You just need to have a clear idea of the costs involved. Plus, you can always minimise the interest charges over time by repaying more of the loan, or saving money in an offset account.

You also need to consider how long it would take you to save a 20% deposit. It could take you years.

No deposit home loans

Most borrowers cannot borrow 100% of their property's value now. Lenders at most will lend you 95% and expect you to save at least a 5% deposit. But there is an exception: a home loan guarantor.

If your parents (or another family member potentially) own a property, they could guarantee a portion of your deposit for you. This means the guarantor is offering their property as security over your home loan. If you can't repay the debt, the lender can sell your home to recover the debt. And they could come after your guarantor's property too.

It's a slightly complicated and risky approach for the borrower (and their parents). But it's a lower risk prospect for the lender and the only true no deposit home loan option left in Australia.

Get creative with your deposit

Another way to get a home loan with a very low deposit is to get creative with how you pull your deposit together.

• Parental gift. If your parents are even more generous and financially comfortable, they could gift you the deposit or part of it.
• Use a first home owners grant. Many first home buyers can qualify for a grant of $10,000 (check our first home owners grant guide to see if you're eligible). This grant can form part of your deposit.
• Boost your savings. This is a hard one (obviously!). But basic saving and budgeting tips are always helpful. You could cut back on your spending, find extra sources of income or try to get more from your existing cash with a high interest savings account or term deposit to earn more interest.

Get more tips on saving a deposit for a house

How to apply for a low deposit home loan

It can be harder to get approved for a home loan with a lower deposit. As a low deposit borrower, you need to ensure that your application paperwork is in order and your everyday spending under control.

Here are some tips to help you get approved:

1. Check your credit score. Strengthen your chances of success by making sure there are no issues with your credit history.
2. Check where and what you're buying. Some lenders impose higher lending requirements on apartment purchases in certain postcodes. They might require a 20% deposit or even 30% depending on what you're looking for, and where you want to buy.
3. Examine your debts and spending. Strengthen your application by paying down debts such as credit cards – and as you repay them, lower the limits to avoid over-spending again. Try to limit your spending as much as you feasibly can before applying.
4. Talk to a mortgage broker. Mortgage brokers don't just connect you to a lender, they help you find one that is likely to accept your application based on their eligibility requirements. Professional help might be just the thing you need.

Advice from an expert

Government support makes low deposit borrowing cheaper

There are now several federal government schemes that allow eligible borrowers to buy homes with 5% deposits. These schemes let you borrow 95% and avoid paying LMI. This means you can avoid quite a big cost associated with a low deposit mortgage.

These are the schemes:

• First Home Guarantee. If you're a first home buyer you can use this scheme to buy or build a home with a 5% deposit and avoid LMI.
• Family Home Guarantee. Under the Family Home Guarantee, eligible single parents can buy homes with 2% deposits and avoid LMI costs while borrowing the remaining 98%.
• Regional First Home Buyer Guarantee. The Regional First Home Buyer Guarantee lets you buy or build a new home in regional Australia with a 5% deposit while avoiding LMI costs.

Find a low deposit home loan in your state or territory

Here's some more information about finding lenders, brokers and government support options for low deposit borrowers in your state or territory.

• NSW

  New South Wales

  There are many lenders in New South Wales offering loans with low deposit options, including lenders based in other states.

  There are specific regional-based lenders too, such as:

  • Newcastle Permanent Building Society
  • Greater Bank (based in Hamilton)
  • Bank of Sydney
  • Hume Bank
  • IMB

  Sydney residents can get in touch with a Sydney-based mortgage broker who can help you get a low deposit loan.

• VIC

  Victoria

  Here are some lenders in Victoria that may have low deposit lending options:

  • Bank of Melbourne
  • BankVic
  • G&C Mutual Bank
  • Bendigo Bank
  • Freedom Lend
  • Bank First

  Residents of Victoria's capital can get in touch with a Melbourne mortgage broker who can help you find a low deposit loan.

• QLD

  Queensland

  If you're looking to buy in Queensland then you can look at loans from most of the major lenders on the market but also Queensland-based lenders such as:

  • Bank of Queensland
  • Suncorp
  • RACQ Bank
  • loans.com.au (But as an online lender it doesn't have physical branches.)

  If you're in Brisbane, get in touch with a Brisbane-based mortgage broker who can help you find a low deposit loan.

  Another low deposit borrowing option in Queensland is a Queensland Housing Finance Loan. This is a state government scheme for eligible first home buyers and allows you to buy a property with just a 2% deposit.

  To qualify, you need to be a Queensland resident with a household income under $141,000 a year with no serious debts and good savings history and credit history.

  You can learn more on the Queensland government page.

  If you are buying or building a new house or unit valued at under $750,000 you may also qualify for the Queensland First Home Owners' Grant, worth $15,000. While the grant could be used as a deposit the Queensland government advises that "it's best not to count on using the grant as a deposit" because the timing of the payment depends on factors such as your application and the type of property you are building.

• SA

  South Australia

  Here are some lenders based in South Australia who may be able to help you:

  • BankSA
  • Adelaide Bank
  • Credit Union SA
  • Tic:Toc (But as an online lender it doesn't have physical branches.)

  You can also find a mortgage broker based in Adelaide.

• WA

  Western Australia

  Borrowers in Western Australia have access to a unique low deposit home loan called Keystart. This is a low deposit home loan that eligible borrowers can get with just a 2% deposit while avoiding lenders mortgage insurance.

  Find a mortgage broker in Perth.

• TAS

  Tasmania

  Here are some Tasmanian lenders who have low deposit home loans:

  • Bank of Heritage Isle
  • Bank of Us

  Get in touch with a mortgage broker in Hobart.

• ACT

  Australian Capital Territory

  The ACT no longer offers a grant for first home buyers but does offer stamp duty concessions.

  Find a mortgage broker in Canberra.

• NT

  Northern Territory

  The Northern Territory government and People's Choice Credit Union offer a scheme called HomeBuild Access. This is a low deposit home loan for new homes and the construction of new homes.

  To qualify for this loan your income needs to be under a certain limit and there are limits on the value of the property you are buying or building.

  The Northern Territory also offers a $10,000 first home owner grant for eligible buyers or builders of new homes.

More questions about borrowing with a small deposit

• What is the lowest deposit for a mortgage?

  For the ordinary borrower, 5% is the lowest your home loan deposit can be. And if you have a guarantor you could buy a house with no deposit.

  But there is another rare case where you could buy a home with a 2% deposit. If you're a single parent borrower who qualifies for the Family Home Guarantee scheme, you could buy a home with a 2% deposit and support from the federal government.

• Can I use super as part of my deposit?

  Not directly. However, first home buyers can use extra super contributions to minimise tax and put it towards a deposit under the first home super saver scheme.

  Investors can purchase investment properties through a self-managed super fund loan.

• Can I get a 5% deposit home loan?

  Yes. While not every lender offers home loans for borrowers with 5% deposits, many do. Just look for a home loan with a maximum insured LVR of 95%.

  This is a mortgage term that means you can get it with a 5% deposit. But you'll need to pay LMI.

• Can I use a First Home Owners Grant as my deposit?

  Yes. If you're eligible for a first home owners grant, you can use that to form part of your deposit. Just make sure you are in fact eligible for a grant in your state or territory.