For many people, owning a home is a significant milestone, and saving for a house deposit is often the first step to having a place to call your own. It is also the largest hurdle to overcome; the deposit is approximately 20 per cent of the property's value. In today's real estate market, that rate could mean a price tag of six figures or higher.
For the average Australian, raising that amount might take several years. If you don't have the funds for a deposit, though, it does not mean your dreams of homeownership will never come true.
Buying Without A Deposit: Achievable But Tough
It will not be easy to buy a home if you have no funds for the deposit. Most traditional lenders do not have an option for no-deposit loans because it is inherently risky. Some specialist lenders provide 100 per cent home loans but only with strict eligibility criteria. This type of loan also has higher interest rates.
Getting a loan with an LVR or loan-to-value ratio of 95 per cent is your best alternative. With this type of mortgage, you will only need to provide a five per cent deposit. Note, though, that you will still need to pay an LMI or lenders mortgage insurance to avail of a loan like this.
Eligibility For No-Deposit Home Loans
The criteria that lenders impose on borrowers applying for 100 per cent LVR loans are stringent. They look for near-perfect credit scores with at least one of the main reporting agencies, a consistent repayment history, and a stable income with continuous employment for at least three years.
Some lenders could stipulate that applicants must have a minimum salary of $150,000 per year. This value goes up to $180,000 for couples. Furthermore, the property in question should be a house, townhouse, unit, or vacant land in a major regional centre, town, or city.
How can you get a home loan without a deposit?
Even if you don't have enough funding for a deposit, you can still secure a loan in several ways. Here are some of the most popular ones.
Having A Guarantor For Your Loan
A home loan guarantor is an immediate family member like a parent or sibling who agrees to step in and pay the loan, should the borrower be unable to do so. Sometimes, uncles and aunts are allowed to be guarantors as well. When someone agrees to become a guarantor, the lender could ask them to offer equity as security; lenders often provide loans of up to 105 per cent to cover for expenses like application fees and stamp duty.
Avail Of Government Grants
A first-time homebuyer can avail of incentives from the State Revenue Office. Examples of these include the FHOG or First Home Owners Grant and the FHSS or First Home Super Saver Scheme. The FHOG is a one-off grant for first-time homebuyers constructing a new house or purchasing a property. Meanwhile, the FHSS lets first home buyers withdraw a part of their contributions to pay for their home deposit.
Another government programme is the FHLDS or First Home Loan Deposit Scheme. FHLDS lets first-time buyers skip the LMI on properties with a five per cent deposit. There is a cap to this programme; only 10,000 borrowers can avail of it every financial year. For the 2020/21 financial year, though, the government has opened an additional 10,000 slots.
First-time buyers would be pleased to note that these government-funded grants can be used on top of each other. The question is, will this be enough to cover the deposit. After all, there are still monetary limits to subsidies like these.
Make Financial Gifts Part Of The Deposit
Some lenders allow substantial monetary gifts to count towards the deposit. If you receive this kind of gift from parents or relatives, you might want to research lenders that allow this practice. Some lenders only accept deposits made of genuine savings, which means regular and incremental deposits over time.
Though there are various ways to avail of a home without paying a large deposit, the most financially secure way to homeownership is by having sufficient funding. When you have enough money saved for a deposit, you can better manage your finances and decrease the chances of defaulting on your mortgage. Lenders also tend to approve loans if the applicant has a stable financial situation.
Get your loan approved today when you partner with Wealthy You. We are Sydney's best mortgage broker, offering a range of solutions for your financial needs. We specialise in alternative lending and help our clients find flexible and affordable solutions fit for their budget. Contact us today to get started!