100% home loans aren’t common. The truth is that before they approve a mortgage, most lenders like to see a deposit – even if it’s just five per cent. But there still are ways you can get a home with no deposit at all. For instance, if you’re a first home buyer, you may be able to use money from a government scheme, such as a first home owner grant or HomeBuilder instead of saving a deposit. You may even be able to use your superannuation if you’re contributing money to the First Home Super Saver Scheme. Alternatively, if you have a family member willing to help you out, you may be able to get a 100% home loan by using a guarantor on your loan.
How does the no deposit home loan work?
Most people buy a home by paying a deposit and using a home loan to finance the rest of the property’s value. The deposit represents the part of the home you own (known as equity), while the home loan represents the amount you need to still pay off. A standard deposit for a home loan is typically 20%, but it’s possible to get a loan with far less than this saved. When you buy a home, most lenders will expect you to have at least five per cent of the purchase price before they give you a loan. That means they’ll lend you a maximum of 95% of the property’s value, which is also known as having a loan-to-value ratio (LVR), of 95%. For instance, if you’re buying a home valued at $500,000, a bank will usually expect you to have savings of at least $25,000 before giving you a loan. Even then, they’d ask you to take out lenders mortgage insurance (LMI), which adds to the cost of your repayments but protects the bank if you default. To avoid LMI, you’d need savings equivalent to at least 20% of the purchase price, or in this instance, $100,000. A no deposit home loan would mean you’re borrowing 100% of the value of the home, so you own no equity in the property at all. Banks are reluctant to allow this because it makes the loan a riskier proposition for them. However, even if you have no deposit, there may be other options available to you.
1. Use a guarantor
A guarantor is someone who uses the equity in their home as security for your home loan. In other words, even though the mortgage will be against the home you’re buying, the bank takes an interest in another property to reduce their risk. When you use a guarantor, some lenders may let you borrow up to 105% of the value of the property you’re buying (i.e. you may be able to borrow enough to cover stamp duty and other upfront costs, as well as the property). That said, if you default on your home loan, the bank has the right to recoup any loss from the guarantor, including by selling the guarantor’s property. To help reduce the risk to the guarantor, some lenders now also allow partial guarantees. Find out more about who can be a guarantor.
2. Use a first home owner grant (FHOG)
Most states and territories help first home buyers get on the property ladder by giving them a first home owner grant (FHOG) they can put towards the cost of their first home, so long as it meets certain criteria. Usually, this means buying a new apartment or home under a certain value, or building your own place to live. For instance, the NSW government currently offers a $10,000 grant to first home buyers purchasing a newly built home under $600,000 or building their own home valued under $750,000. The Victorian government offers a grant of $10,000 to first home owners buying a metropolitan property valued under $750,000 and a $20,000 grant for a regional property under this threshold, so long as the property is less than five years old. These grants come on top of generous stamp duty concessions and exemptions and lenders will often let you count your FHOG as part of your deposit, meaning you potentially may not need to have saved any money towards your home. However, this is rare. Most lenders will want to see at least some evidence of ‘genuine savings’. The Commonwealth government’s First Home Loan Deposit Scheme can’t be used as a deposit, but could help you avoid LMI by guaranteeing the difference between your deposit and 20% of the home’s value. Read more about whether you qualify for the first home owner grant in your state or territory.
3. Use the federal HomeBuilder grant
The Commonwealth government’s HomeBuilder scheme provides a $25,000 grant to people buying or building a new home. To be eligible, the contract must be signed between 4 June 2020 and 31 December 2020 and the property’s value (including house and land) must be under $750,000. You also must earn less than $125,000 if you’re applying as an individual and $200,000 if you’re applying as a couple. Depending on your State or Territory, some lenders may allow you to use this towards your home deposit.
4. Use your superannuation
Did you know that in some circumstances you can use your super towards a home deposit? The Commonwealth Government’s First Home Super Saver (FHSS) Scheme lets you make extra contributions to your superannuation, which you can then withdraw and use towards a home deposit. This gives you the advantage of only paying the 15% superannuation tax rate on the money you’re saving towards your home rather than your marginal rate of tax. The FHSS comes with strict criteria, including limits on how much you can contribute. You’ll also need to apply to have your money released. However, there’s no limit on the type of home you can buy with this money – it doesn’t have to be new or under a certain threshold.
5. Use a gift
With property prices so high, it’s not uncommon for first home buyers to receive a helping hand from parents or other close family members. Many lenders will let you use the gift you receive as part of your deposit. However, to satisfy them that you’ll be able to keep meeting your repayments, some may still want to see that you have genuine savings outside of any gift. This is especially true if your deposit is 10% or less.
Buying a home with no deposit
While banks are reluctant to offer 100% home loans, first home buyers still have options. Some or even a combination of several of the schemes outlined above may help you get on the property ladder without having saved a deposit at all.
This article was originally published on
27 Nov 2020 at 2:01pm
but has been regularly updated to keep the information current.