Compare low deposit home loans

To take out a home loan in Australia, you need to contribute a deposit to secure it, and how much you have will vary depending on your financial situation. If the deposit you make is less than 20 per cent, or even 10 per cent, of the value of the property, this is considered a low deposit home loan. 

Low deposit home loans work in exactly the same way as ‘traditional’ home loans; the only difference is you might incur higher interest rates because the bank is taking more of a risk when accepting your loan, considering that you’ve made less of an outlay and, therefore, have a bigger debt to pay back.

Typically, borrowers who secure a loan with a small deposit have to pay lenders mortgage insurance (LMI) but there are several strategies to avoid coughing up this extra cash. 

About lenders mortgage insurance: LMI is an insurance policy that covers the lender if the borrower defaults on their home loan repayments, allowing them to get their money back. It’s important to remember that even though the borrower pays the LMI, they are not covered—only the lender is. LMI premiums fluctuate depending on deposit size, loan amount and property value. Often, LMI can be added to the sum of your loan so you can make the loan repayments over time rather than all at once.

Yes, it is possible to take out 5 per cent deposit home loans but it may be difficult to find a lender that offers them (disclaimer: the eligibility criteria for these low deposit loans will mean taking a good look into your credit history). In addition, it’s important to consider that the lower your deposit, the higher your interest is likely to be, and you will likely be on the hook for LMI as well.

The Australian Government has two low deposit home loan schemes where securing 5 per cent deposit home loans is possible for buyers (we’ll touch on this later).

There are several factors to weigh up when deciding if taking out a low deposit home loan is for you. Here’s a quick summary to help streamline your decision-making process.

Benefits of low deposit home loans:

• You can buy and own a new home sooner—this is particularly appealing for first time buyers who are ready to stop renting and get into the property market by purchasing their own new home
• By the time you save up a large deposit, house purchase prices may be higher than when you first started saving—making it harder to enter the property market
• A lower deposit cuts down the time you’ll need to save up for your new home, so you can get your foot on the property ladder faster. Once you secure your home loan, you can begin building equity in your property for the future.

Risks of low deposit home loans:

• Buying a property with a smaller deposit means you will have a larger debt overall
• Low deposit home loans usually equate to higher interest rates and, therefore, higher monthly loan repayments
• Borrowers who opt for a deposit less than 20 per cent will generally have to pay for LMI to cover the loan amount, which can cost thousands, unless it is a guarantor home loan.

No, you can’t get a home loan without a deposit—it’s considered too risky for lenders. The one loophole with this is the parental guarantee, which allows parents to guarantee a portion of your deposit for you (if they own a property themselves). There are obviously a range of factors and eligibility criteria involved in this decision, so it’s not something everyone can rely on. 

First Home Loan Deposit Scheme (FHLDS)

FHLDS is a low deposit home loan scheme designed to support eligible first home buyers to purchase their first home sooner. 10,000 places are available in this scheme each financial year.

To be eligible for the scheme you must:

• Be an Australian citizen 18 years or over (permanent residents are not eligible)
• Be a couple that is married or in a de-facto relationship
• If a single applicant, have a taxable income of up to $125,000 per annum for the previous financial year; if a couple, this increases to $200,000
• Have at least 5 per cent of the value of the property in genuine savings, to use as a deposit—if 20 per cent or more is saved, then the home loan amount will not be covered by the scheme
• Repay the principal and interest of the loan for the full period of the agreement (with limited exceptions for interest-only loans, which mainly relate to construction lending)
• Intend to be owner-occupiers of the purchased property (investment properties are not supported by FHLDS)
• Be first home buyers who have not previously owned, or had an interest in, a property in Australia, either separately or jointly with someone else (this includes residential strata and company title properties).

Family Home Guarantee

Another low deposit loan scheme, The Family Home Guarantee, helps single parents buy a family home with a deposit as low as 2 per cent. From 1 July 2021 to 30 June 2025, 10,000 family home guarantees will be available to eligible single parents with dependants.

To be eligible for this low deposit loan scheme you must:

• Be an Australian citizen 18 years or over (permanent residents are not eligible)
• Be a single parent with at least one dependent living with you
• Have earned $125,000 or less last financial year
• Not currently own a home but you can have owned a home before
• Have at least a 2 per cent deposit to contribute towards your property purchase.
• You cannot use the Family Home Guarantee to buy an investment property.