How to get a home loan with no deposit

Zero-deposit home loans offer an alternative to those struggling to save thousands to buy a property. Instead, lenders can purchase a home sooner by choosing zero deposit options.

If you’re wondering how to secure a home loan with no deposit, look no further. In this home buyer guide, we’ll talk you through loans with no deposit and whether you’re eligible for low-deposit borrowing.

Let’s get to the following commonly asked questions: 

• Understanding no-deposit home loans
• Eligibility for no-deposit home loans
• Types of no-deposit home loans
• How to apply for a no-deposit home loan
• Risks associated with no-deposit home loans

Q1. Understanding no-deposit home loans

No-deposit home loans, also known as zero-deposit home loans,  are an alternative form of owner-occupier mortgage, allowing borrowers to buy a property without paying a home loan deposit upfront. 

Traditionally when buying property, you need to pay a deposit of around 20% of the property’s purchase price. A loan deposit is not only used to demonstrate a borrower’s ability to save but show their commitment to climbing the property ladder.

Gaining popularity in the early 2000s, no-deposit home loans allow borrowers to finance the entire property value without having to save for a deposit. 

Note: Aimed primarily at first-home buyers, zero-deposit loans offer far more accessibility to the property market.

Q2. Eligibility for no-deposit home loans

When buying your first home with a no-deposit home loan, you’ll likely be subjected to much stricter eligibility criteria than a traditional loan option. This is because you haven’t proved your financial responsibility and ability to make a regular monthly repayment.

While every lender is different, some common eligibility factors are: 

• Credit history: A good credit history with a record of repaying debts on time improves your chances of being approved for a no-deposit home loan. Any previous defaults or late payments could negatively affect your eligibility.

• Stable employment and income: Lenders need to ensure that you have a stable source of income to support your loan repayments. They typically look for a steady employment history and may require a minimum period of continuous employment of over six months. In some cases, lenders may require borrowers to show they have genuine savings.

• Lenders Mortgage Insurance (LMI): Since no-deposit home loans involve a higher loan-to-value ratio (LVR), lenders typically require borrowers to pay for LMI. The cost of LMI can vary depending on factors such as the loan amount and the borrower's financial situation.

Q3. Types of no-deposit home loans

• Guarantor home loans: With a guarantor home loan, a family member uses their property as security for the loan, which allows you to borrow up to 100% of the property’s value - removing the need for a deposit. Guarantor loans can be risky - if you fail to make your monthly repayments, your family member’s home could be repossessed. 

• Family Home Guarantee: A new initiative introduced in 2021, the Family Home Guarantee is part of the government schemes designed to help single-parent families. With this guarantee, you can buy a home with low deposit loans of as little as 2%. The government also guarantees 18% of the property’s value, eliminating the need for LMI. 

• First Home Loan Deposit Scheme (FHLDS): One of the Au government's home owner grants, the FHDLS is designed to help first-time buyers purchase a property with a low-deposit home loan of just 5%. The FHLDS has a limited number of spots available, so if you’re interested, apply quickly.

Q4. How to apply for a no-deposit home loan

1. Start by doing your research and comparing home loan providers that offer no-deposit mortgages. When researching, look for providers that offer competitive interest rates and terms and conditions. 

2. Every loan provider will have different criteria, so check whether you’re eligible for a no-deposit home loan, including income, credit history, and savings history, before proceeding with the application.

3. Gather the correct documents. Depending on your provider, you may need identification documents, proof of income, bank statements, and savings history. If you’re unsure of what documents you need, contact your lender. 

4. Consider seeking pre-approval before house hunting to understand your borrowing power better. Pre-approval involves the lender assessing your financial situation and indicating how much you can borrow, giving you a better idea of your budget and helping you make informed decisions about property prices and budgeting.

5. Fill out the application form provided by the lender, and give accurate and detailed information about your personal and financial circumstances. Be prepared to disclose your income, expenses, employment history, and other relevant details with the necessary documents.

Q5. Risks associated with no deposit home loans

No loan is without risks, and zero-deposit home loans are no exception. Before applying for zero deposit home loans, whether a variable rate or fixed rate home loan, ensure you understand the potential downsides. 

These may include: 

1. Higher interest rates: since lenders perceive zero-deposit loans as a higher risk, they may adjust the interest rates to reflect this.
2. Pay Lenders Mortgage Insurance (LMI): because you’re not providing a deposit, you’ll need to pay LMI to protect yourself if you fail to repay your loan.
3. Lower borrowing capacity. There are more borrowing capacity restrictions with no deposit home loans, which can limit your choice of properties.

Summing up

Zero-deposit home loans offer a fantastic alternative for owner-occupiers struggling to produce a 20% deposit. In this buying property guide, we’ve covered everything you need to know about the increasingly popular no-deposit mortgages, including what they are, eligibility criteria, and how to apply. 

If you liked this article, check out the WeMoney blog, where we regularly post financial advice. Alternatively, read our article ‘How long does refinancing take?’

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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.