No deposit home loans explained

What is a no deposit home loan?

A no deposit home loan is one where the borrower is not required to put down any deposit to secure the loan. This would mean being approved for a loan at the full purchase price of a home—a loan of 100%. Typically, it’s far more common to be approved for a loan of 80% of the purchase price, meaning you would have saved a 20% deposit to secure it.

Can you get a home loan with no deposit?

Yes, it may be possible to get a home loan with no deposit through some lenders if you meet certain criteria. There are generally two ways you can secure a nil deposit home loan:

• Having a guarantor on the loan
• Using equity in a property you already own

That said, it’s generally not all that common for lenders to offer home loans with absolutely no requirement for the borrower to have a deposit. Instead, some may offer low deposit home loans with a loan-to-value ratio (LVR) of 95% if the borrower has a reliable income source and meets other criteria such as having a good credit score. This means the borrower still needs to save a deposit of 5% of the purchase price and will likely need to pay for lenders mortgage insurance (LMI).

How do no deposit home loans work?

A no-deposit home loan, also known as a 100% home loan, allows you to buy a property without paying an upfront deposit. Instead, the lender finances the full purchase price. These loans are less common and usually come with higher interest rates and tighter lending criteria.
In most cases, lenders won’t approve a no-deposit loan unless you have a guarantor—typically a family member who uses the equity in their own property as security. Alternatively, if you already own a property, you may be able to use existing equity instead of a cash deposit. Without a guarantor or equity, you’ll usually need at least a 5% deposit.

Even if you don’t need to provide a deposit for your home loan, there are typically other upfront costs involved in buying a home you will need to budget for, such as stamp duty in some states and territories, legal fees, building inspections and more.

As for whether a no- or low-deposit home loan is a good idea or not, as we explain below, they aren’t necessarily suitable for every type of borrower, and there are a few common risks you may want to be aware of before applying for one.

Lending criteria for no deposit, 100% home loans

Lenders typically apply very strict criteria when looking at applications for no-deposit home loans to account for the level of risk involved in lending to someone in that situation. Requirements for borrowers considering no-deposit loan options may include:

• High credit score: Borrowers must generally have a high credit score with one of the main credit reporting agencies.

• Responsible repayment history: Similarly, borrowers are typically required to show they have been paying all of their current debts on time, such as credit cards, personal loans and rent.

• Stable employment income: No-deposit borrowers generally must have a stable, ongoing job that provides an income high enough that they can afford to repay the loan.

What are your options if you’d like a no or low-deposit home loan?

Saving a 20% deposit is often one of the most challenging aspects of homeownership. But there are ways to get into the market with a smaller deposit, or even none at all, depending on your eligibility and financial situation.

Examples of how you may be able to get a home loan if you don’t have enough savings for a 20% deposit include:

No deposit home loans

• Guarantor uses their home equity to secure the loan

• Equity in another property

Low deposit home loans

• First Home Owners Grant (FHOG)

• Home Guarantee Scheme (HGS)

• Gifted home deposit

We’ve explained each of these options in more detail below.

Asking someone to go guarantor for you

If you don’t have a deposit, a family member, usually a parent or an immediate family member, may be able to help by going guarantor on your home loan. This means they use the equity in their own property to secure your loan, allowing you to borrow up to 100% of the property value with some lenders.

To qualify, the guarantor must own a home and have built up enough equity. They’ll also need to show they can cover the loan if you can’t.
It is possible for the guarantor to only secure a part of the loan, typically up to 20% of the property value. This helps reduce your loan-to-value ratio to 80%, which may mean you can avoid paying LMI. However, if you’re unable to meet repayments, the guarantor is legally responsible for the guaranteed amount.

While guarantor loans can be a helpful way to get into the property market, it’s important to weigh the risks and understand the responsibilities involved—for both you and your parents.

Equity in a property you already own

Equity is the difference between how much your property is now worth and how much you still owe on the home loan for that property. If your property is now worth more than you still owe on the home loan for it, this is known as ‘positive equity’.

If that’s the case, you may be able to access some of the positive equity on that loan as a deposit towards buying another property–if you can afford to repay two mortgages at once, that is.

First Home Owners Grant

First home buyers looking for a financial leg-up may be eligible for a First Home Owners Grant from their state government, if they meet certain requirements, and if they plan to live in the property as their home for a certain timeframe.

You can visit your state or territory government’s website for full eligibility details, including how much you could receive and how to apply.

Home Guarantee Scheme

The Home Guarantee Scheme (HGS) is an Australian Government initiative aimed at helping eligible buyers get into a home sooner. It provides government-backed guarantees on home loans to reduce the deposit needed, making home ownership more accessible for different groups, including first home buyers and single parents.

The First Home Guarantee (previously called the First Home Loan Deposit Scheme) is designed to help some eligible first home buyers get a loan with a deposit as low as 5%, without needing to pay for LMI.

The government essentially acts as a guarantor and secures the remaining deposit to bring the home buyer up to 20%. The guarantee has a limited number of placements per year and there are income caps and location value caps that apply for eligible applicants.

The Family Home Guarantee is a government scheme that allows eligible single parents with dependants to buy or build a home with a deposit of as little as 2%. Unlike some other schemes for home buyers, the Family Home Guarantee is not limited to people purchasing their first home.

Gifted home deposit

If you receive a large monetary gift—say from the ‘Bank of Mum and Dad’ or a ‘windfall’ from something like an inheritance or the lottery—you may decide to put that towards a house deposit.

Using gifted money means you’re relying on funds that weren’t saved by you personally. These kinds of funds may be accepted by some home loan lenders but lending requirements will differ. For example, you may need to provide a ‘gift letter’ that says the monetary gift is non-refundable and unconditional—or, in other words, that there’s no expectation the money will be repaid. It’s worth noting, though, that some lenders will only accept a deposit made up of ‘genuine savings’ accumulated over time, and therefore wouldn’t accept funds you haven’t built up yourself by saving.

Are home loans with no deposit a good idea?

While there are some potential upsides to no deposit home loans, there are also a few key reasons why it’s an approach you might choose to avoid, and instead try to raise as large a deposit as you can.

Possible benefits of home loans with no deposit

• A home loan with no deposit may give first home buyers with a small amount of savings a way to buy in a property market that might otherwise be unaffordable. However, home loans with no savings may not always be suitable for first home buyers.

• Property investors with some equity in a property but less genuine savings in the bank could use equity for the deposit on an investment home loan.

• In the time it takes to save up a sizable deposit, the property market may rise significantly—depending on the property and its location. Buying without a deposit can help you purchase sooner and secure the home at a comparatively lower price.

Possible disadvantages of no deposit home loans

• Some lenders charge higher interest rates if you borrow more than 80% of the property purchase price. Plus, the more you borrow, generally the more interest you’ll have to pay the lender over the life of the loan.

• There could be a lengthy and difficult approval process for no deposit home loans. This is because of the need for additional credit checks on the borrower and the guarantor, if applicable.

• It may not be a good idea to borrow the full purchase price, because if the value of your property decreases while you are paying off your mortgage, you may end up owing more than it is worth. This is called being in ‘negative equity’.

• No deposit home loans are not very common, and not all lenders may offer them.

No deposit home loans can make it easier to enter the property market, especially for buyers with limited savings. However, they often come with higher risks and stricter requirements.

If you are in a financial situation where saving up for a deposit is not possible, taking on a large amount of debt in the form of a home loan may put you under further financial pressure. It’s important to carefully assess your financial situation and consider how future changes, like cash rate movements, could impact your ability to manage repayments.

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