Home ownership is a dream for many Australians, but many find it difficult to save up the standard 20% deposit that lenders ask for when you apply for a home loan.
Saving up for a deposit can be challenging for some people, and the Australian government recognise that. So do many of the lenders. That is why there are various concessions, grants, and other support mechanisms available to help people get a home loan without a 20% deposit of the value of the property.
Can I really get a home loan with a low deposit?
Yes you can. There are a few ways in which you can get approved for a home loan with a deposit of 5% of loan value. Your choices widened recently with the Australian government introducing the 2021 First Home Loan Deposit Scheme (details below).
Typically most people buying a home require a deposit to the value of 20% of the home purchase value in order to avoid LMI.
Many lenders accept applications with a smaller deposit, of say 10% or even 5% if you can meet certain conditions.
You get Loan Mortgage Insurance
If you are willing to pay for LMI — which can add thousands of dollars to the total cost of your loan — then you can get a home loan with a deposit less than 20% LVR from many lenders. The cost of LMI can depend on the property value, loan amount, and the size of your deposit. It can also vary by the lender and their LMI provider.
Just because you take LMI you are not off the hook if you are unable to pay back the loan. Your lender may be secure because of it, but the insurance company will come after you to get the outstanding amount.
If you are going for this option, you are better off talking to a mortgage broker because they would be in a position to recommend the best lenders who would work with low deposit borrowers. They would also know lenders with less costly LMI.
You can find a guarantor
If you can get your parents or someone else with home equity or ability to show they can pay your loan installments in case you are unable to, many lenders would give you a home loan with a deposit that’s less than the standard 20%. Then it becomes a guarantor home loan.
You are eligible for various government support schemes
Federal as well as state and territory governments across Australia encourage home ownership. There are first home and home loan grants, LMI and duty concessions. Your choices widened recently with the Australian government introducing the 2021 First Home Loan Deposit Scheme.
Help for first time buyers
There are a range of schemes to help borrowers buy their first home.
- First Home Loan Deposit Scheme (FHLDS). This is a federal government initiative that underwrites home loans for first home buyers. The recently announced scheme has 10,000 spots for approved applicants to get a mortgage with a deposit of just 5% and avoid paying for LMI. The scheme is open from 1 July 2021 to 30 June 2022.
FHLDS allows borrowers to avoid paying for LMI if they are unable to get a guarantor for their home loan. Details are available at the National Housing and Investment Corporation.
- Family Home Guarantee (FGH) helps single parents with at least one dependent get a home loan with as little as a 2% deposit. Single parents are eligible whether they are first home buyers or previous home owners. There are 10,000 FHG spots available from 1 July 2021 to 30 June 2025.
- First Home Owner Grant (FHOG): Depending on where you live and whether you plan to buy an existing or newly-built home, you may be able to get a grant of between $10,000 and $16,000 offered by state and territory governments. A successful applicant can add the grant to existing savings to meet the lender deposit amount. Check your state's details at firsthome.gov.au.
- First Home Super Saver Scheme (FHSSS) allows first home buyers to save for a home deposit through their superannuation. You can make up to $15,000 of tax-deductible voluntary super contributions every year towards your deposit. Find out how to use your super to buy a house. Details and recent changes to the FHSSS can be found at ATO's First home super saver scheme page.
- LMI duty and other stamp duty concessions: Some states have concessions for first home owners, on the stamp duty payable on property transfer. Check with your state or territory Revenue Office or Treasury Department web pages:
- There are also various home ownership support initiatives for:
- Australian Defence Force (ADF) members and veterans
- Public servants (government employees)
- Casual workers