Can I get a home loan with a low deposit?
Last updated: 20 May 2024 | Estimated read time: 5 Minutes
Saving a deposit can be one of the biggest hurdles to buying a property – especially for first time buyers. But it may be possible to still achieve your dream of home ownership without having to save a huge deposit first.
With the cost of living increasing and property values high, there are more hurdles than ever for everyday Australians looking to get onto the property ladder – especially if you’re trying to save for a deposit and pay rent at the same time.
The good news is, you may not need to have the traditional 20% of the purchase price in the bank before you can start looking for a property. There are ways to buy a home with a low deposit – including a low-deposit home loan or government schemes.
What are low deposit home loans?
How much do I need to save for a low deposit home loan?
You may be able to get a low-deposit home loan with as little as 5% of the total value of your property saved. This will depend on the property and area you’re planning to buy in as well as your own personal financial circumstances, income and credit history.
When you borrow more than 20% of the total value of your property, your lender may charge Lenders Mortgage Insurance (LMI) – a one-off fee to offset the risks involved in borrowing a larger percentage of the value of your property.
If you want to avoid paying LMI, you can look for a lender that doesn’t charge it – like Pepper Money. Alternatively, there are a couple of government schemes that may help – if you’re eligible.
Government help for low deposit home loans
It can be challenging to save up a deposit for many first-time buyers, but the government does offer a couple of schemes to help eligible borrowers get into their own home sooner.
First Home Owner Grant
The First Home Owner Grant (FHOG) is designed to help eligible first time buyers get into their own home faster. Depending on where you live, you may be able to get a grant to help you with the costs of buying a house, townhouse or apartment.
The exact criteria and amount you’ll get will depend on your state1. For example, in NSW it’s $10,000 towards the purchase of a new or substantially renovated home and in VIC it’s $10,000 towards a home that’s not been previously sold or occupied.
First Home Guarantee (FHBG)
The FHBG is part of the First Home Guarantee Scheme. Under the FHBG, Housing Australia will act as guarantor for your home loan, allowing you to buy it for as little as 5% deposit, without paying LMI. Places are limited on the scheme at 35,000 a year and you’ll need to meet income requirements2.
To apply for the FHBG, you’ll need to:
- Earn less than $125,000 for individuals or $200,000 for joint applicants
- Intend to live in the property you buy
- Have not owned property or land in Australia in the last 10 years
Different property types come with different price caps, which you can find here. It depends where the property is located and the type of property you’re planning to buy.
How to apply for a low-deposit home loan
Not all lenders offer low-deposit home loans, so the first step is to find one that does. At Pepper Money we have a range of flexible home loan options, and can offer up to 95% of the purchase price – so you may be able to start looking for your new home with just a 5% deposit.
Your loan application will be assessed on your individual circumstances. A lower deposit home loan means you’re borrowing more, and the lender needs to make sure you can comfortably make the repayments.
Here are a few things a lender may look at when assessing your low deposit home loan application:
Do you have reliable income?
Are your debts under control?
Do you have a good credit history?
Can I use a gifted deposit?
When you apply for any type of home loan, your lender will likely want to see a history of genuine savings – money you’ve been putting away regularly for a period of time (usually at least three months). In some cases, stocks and shares can also be considered genuine savings if you’ve held them for at least six months.
If you’ve just inherited money, or your parents have offered to help you out with a deposit, it’s usually classed as non-genuine savings. Because non-genuine savings don’t show how well you manage your finances, many lenders will view them more cautiously than genuine savings.
This doesn’t mean you can’t use a gifted deposit to buy a property. But it does mean you may need to find a lender that accepts gifted deposits.
We’re here to help
Sources:
1 First Home Owner Grant: www.firsthome.gov.au
2 First Home Guarantee Scheme: www.housingaustralia.gov.au/support-buy-home/first-home-guarantee
Contributor | Barry Saoud, General Manager, Mortgages and Commercial Lending
Barry joined Pepper Money in July 2021 as General Manager, Mortgages and Commercial Lending. He is responsible for the strategic direction and operating performance across product, credit, and settlements for mortgages, commercial loans, personal loans, and direct sales. Read more.
Want to find out where you stand?
Sign up to our newsletter
If you like this article, you'll love our monthly Real Lives newsletter.
View our Privacy Policy
Resources to help with credit issues
It can be tough to recover from a credit event. We've put some resources together to help you get back on-track.
Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.
All applications for credit are subject to credit assessment, eligibility criteria and lending limits. Terms, conditions, fees and charges apply.
The results of the borrowing power calculator are based on information you have provided and is to be used as a guide only. The output of the calculator is subject to the assumptions provided in the calculator (see 'about this calculator') and are subject to change. It does not constitute a quote, pre-qualification, approval for credit or an offer for credit and you should not enter commitments based on it. The interest rates do not reflect true interest rates and the formula used for the purpose of calculating estimated borrowing power is based on the assumption that interest rates remain constant for the chosen loan term. Your borrowing power amount will be different if a full application is submitted and we complete responsible lending assessment. The results in the calculator do not take into account loan setup or establishment fees nor government, statutory or lenders fees, which may be applicable from time to time. Calculator by Widgetworks.
Pepper Money Personal Loans is a brand of Pepper Money Limited. Credit is provided by Now Finance Group Pty Ltd, Australian Credit Licence Number 425142 as agent for NF Finco 2 Pty Limited ACN 164 213 030. Personal information for Pepper Money Personal Loans is collected, used and disclosed in accordance with Pepper’s Privacy Policy & the credit provider’s Privacy Policy.
Pepper Money Limited ABN 55 094 317 665; AFSL and Australian Credit Licence 286655 (“Pepper”). All rights reserved. Pepper is the servicer of home loans provided by Pepper Finance Corporation Limited ABN 51 094 317 647. Pepper Asset Finance Pty Limited ACN 165 183 317 Australian Credit Licence 458899 is the credit provider for asset finance loans.
Pepper and the Pepper Money logo are registered trademarks of Pepper Group Assets (Australia) Pty Limited and are used under licence.
