Is a Home Loan with No Deposit a Great Option?

Considering joining the real estate game but struggling to save up a decent deposit? If your income is sufficient to cover loan repayments, a no deposit home loan might be the solution to acquiring that investment property you’ve been thinking about for a while. This specialized loan allows you to enter the property market without the need for a significant upfront payment, potentially expediting your property ownership journey.

We’re here to assist you in making an informed decision about no deposit home loans, helping you understand how it works, examining the pros and cons of securing a property without a deposit, and guiding you through alternative lending options.

What are no deposit home loans?

These loans are tailored for borrowers who do not pay a deposit and instead secure approval for 100% of the property’s value from a lender. While true “no deposit” home loans are rare, those available usually still require a minimum deposit of 5-10% of the loan amount. Low deposit home loans, though more common, come with strict lending criteria due to the risk involved, often involving comprehensive risk assessments by lenders.

Should you find a lender for a no deposit home loan, be prepared to shoulder the cost of Lenders Mortgage Insurance (LMI), calculated at 20% of the purchase price. Make sure to factor in this upfront cost and legal fees in your financial planning.

How does a no deposit home loan work?

Meeting strict criteria is essential, including a high or near-perfect credit score, a history of responsible repayments, and stable employment with documented income. Lenders typically prefer applicants who have saved for a deposit through regular bank deposits, particularly favoring PAYG employees over self-employed individuals due to perceived higher risk.

The pros of no deposit home loans

The benefits of no deposit home loans include immediate entry into the property market, especially advantageous for first-home buyers with lower savings balances. It also facilitates quicker expansion of your property portfolio without the need for substantial savings. Additionally, no huge savings are required, as some lenders may approve loans covering 105-110% of the property’s value, encompassing associated purchase costs.

The cons of no deposit home loans

However, drawbacks exist, such as potentially higher interest rates, strict lending requirements, and a greater risk of depreciation due to minimal equity. Hidden upfront costs, including Lender Mortgage Insurance, also contribute to the cons of no deposit home loans.

Can I get a no deposit home loan as a first home buyer?

As a first-home buyer, you can still explore alternatives if saving a deposit proves challenging. Consider options like Guarantor Loans, wherein a family member or friend guarantees the loan, or explore First Home Owner Grants provided by Australian States and Territories. 

If you have more specific questions then please contact us and we can put you in touch with a great local mortgage broker who can tailor a strategy to suit your individual needs.