With property prices continuing to rise across most capital cities, trying to save a 20% deposit to get into the market is a struggle that many Australians face.

Are low deposit home loans actually being offered by lenders?

Getting Approved

How big of a deposit do I need?

So-called “low deposit home loans” are also known as high Loan To Value Ratio (LVR) home loans.Did you know that anything less than a 20% deposit is actually considered a high risk by most banks?

Luckily, there are lenders than can allow you to borrow over 80% or even 90% of the property value.

You may still qualify for a home loan even if you have a:

• 3% deposit
• 5% deposit
• 10% deposit
• 15% deposit

There’s also the federal government’s First Home Loan Deposit Scheme for first home buyers.

Give us a call on 1800 771 900 or fill in our online enquiry form to find out if we can get you approved.

How do I qualify?

Most lenders have quite strict lending criteria for borrowers with small deposits but, generally speaking, if you can meet the following requirements, you’ll have a good chance of getting approved even if you may have a deposit as low as 3%.

A good income: The lender will consider your income carefully because it forms the basis of their assessment of your capacity to make mortgage repayments, otherwise known as your serviceability.

Loan purpose: If you need the home loan for any other reason than to purchase, refinance or build an owner occupied or investment property, such as debt consolidation, then this may be considered depending on the strength of your application.

Property: Check out this accurate list of restrictions on property types and locations for a low deposit home loan, such as mining towns, high rise units and display homes.

Clean credit file: There should be no black marks in your credit history such as late payments on personal loans, credit cards or rent. However, some lenders are less strict if you have at least 10% or more as a deposit.

Genuine savings usually required: No matter the size of your deposit, most banks will not even consider your low deposit home loan application unless you have at least 5% of the purchase price in savings that you’ve accumulated over a period of 3 months. The great news is that this so-called “genuine savings” rule isn’t a requirement for all lenders if you can meet certain criteria.

Reasonable asset position: Your age and income should reflect a relative level of assets such as you owning a car, jewelery, having a savings and so on.

Reliable, long term job: Lenders generally like to see that you’re working full time (although there are exceptions to this) with an employment history of at least 5 months in your current role or 2 years in the same line of work.

Low level of debt: Although you’ll need a good credit file, the general rule for borrowing at a high LVR is ensuring that any unsecured loan you have such as a personal loan or a credit card doesn’t exceed more than 5% of the purchase price of the property. Depending on the lender and your deposit though, showing a history of perfect repayments on these debts can work in your favour.

Obviously, the bigger your deposit, the more our mortgage brokers can leverage when negotiating an approval. On top of that, you’ll have a greater number of lenders available to you.

How do low deposit loans work?

As previously mentioned, borrowing more than 80% LVR is considered to be a high risk so most Australian lenders have limited the maximum amount they will allow you to borrow to a 10% deposit home loan plus LMI.

Getting approved for a 10% deposit home loan requires you to provide strong evidence to the lender that you’re a good borrower. Since only a handful of lenders offer 5% deposit home loans plus LMI, getting approved with anything less than a 10% deposit is even tougher.

The great thing is that once you’re approved, you can enjoy the relatively same interest rates as someone who has a 20% deposit.

Do all lenders offer low deposit home loans?

No, not all lenders will approve low deposit mortgage applications, in particular, the major banks.

For borrowers with a 5% deposit or less, we tend to try for a non-bank because they are:

• Less restrictive in their requirements.
• There tends to be little difference between their interest rates and a bank.
• Sometimes we hear about a special offer that far outweighs anything a bank can offer. Please call us on 1800 771 900 and we can tell you how we can help.