Do you dream of owning your own home, but find it challenging to save up for the standard 20% deposit that lenders ask for?
You are not alone.
In recognising this challenge, and as a way to encourage home ownership, the Australian government offers various grants, concessions and other support mechanisms. You can make use of these to apply for a home loan even if you do not have a deposit amounting to 20% of the property value.
Can I really get a home loan with a 10% deposit?
Yes. There are a number of options you can use to get a home loan approved with a deposit of 10% of your loan value. The 2021 First Home Loan Deposit Scheme introduced by the Australian government has improved your chances. (See details below).
Usually, banks ask for a deposit of 20% of your home loan value in order to avoid paying for the extra expense of LMI. However, there are many lenders that would accept smaller deposits, 10% or even 5% for people who can meet certain conditions.
Lenders Mortgage Insurance
Getting Lenders Mortgage Insurance (LMI) is possible, but an expensive option for those who have saved less than 20% Loan to Value Ratio (LVR) for a deposit. LMI can add thousands of additional dollars on top of your loan amount, but most vendors will approve your loan application with LMI in place. The LMI cost you have to pay depends on your property value, loan amount, deposit amount and the LMI provider.
Remember that getting LMI is a protection for the lender, not you as borrower, in case you are unable to pay back your loan.
If you explore the LMI pathway, consider talking to a mortgage broker first. In most cases your mortgage broker will be able to recommend lenders who are willing to work with borrowers who accept low deposits. Mortgage brokers can also let you know which lenders have more affordable LMI providers.
Finding a guarantor
If you have saved less than the required 20% for a home loan deposit, getting a loan guarantor to sign up is another option for making your home ownership dream a reality. Many lenders would consider approving guarantor home loan applications without the standard 20% deposit.
Most people ask their parents, family members or other trusted parties to become a guarantor. Your guarantor usually has to have equity in their own home and must be willing and able to pay off your loan instalments in case you fail to do so, so it’s not a commitment to be undertaken lightly. Lenders may insist that guarantors seek legal advice before committing.
Government support schemes
Federal, state and territory governments in Australia have a policy of encouraging home ownership. You may be able to qualify for a first home loan grant or other home loan grant, and the various LMI and duty concessions they offer. The Australian government’s 2021 First Home Loan Deposit Scheme, introduced to help first time home buyers, widened your choices significantly.
Check whether you may be eligible for any of these schemes for borrowers buying their first home.
- First Home Loan Deposit Scheme (FHLDS) is a federal government initiative to underwrite home loans for first home buyers. Open from 1 July 2021 to 30 June 2022, the scheme has 10,000 spots available for approved applicants to get a mortgage, even with a deposit as low as 5%, without paying for LMI. This is an option for you if you are unable to find a guarantor for your home loan. Check out the details at the National Housing and Investment Corporation.
- Family Home Guarantee (FHG) helps single parents with at least one dependant get a home loan with a low deposit (as little as a 2% of loan amount). Single parents are eligible for the FHG whether they are first home buyers or have previous home purchases. Find out if you are eligible for one of the 10,000 FHG spots open from 1 July 2021 to 30 June 2025.
- First Home Owner Grant (FHOG) is offered by state and territory governments and is another option open to you depending on where you live. Whether you are planning to buy a newly-built home or an existing one, you may be eligible for a FHOG between $10,000 and $16,000. If you are successful as an applicant, you can add the grant value to your savings to make up the required lender deposit. Visit firsthome.gov.au for your state's details.
- First Home Super Saver Scheme (FHSSS) enables first home buyers to save up for their home deposit via their superannuation. It is possible to make up to $15,000 in tax-deductible voluntary super contributions each year, towards your home loan deposit. Find out how to use your super to buy a house. Recent changes to the FHSSS can be found at the ATO's First home super saver scheme page.
