For many aspiring homeowners, saving for a sizable down payment can be a significant hurdle to entering the property market because every housing loan usually needs a deposit.
However, no deposit home loans offer a practical solution that allows buyers to obtain a mortgage without making a large down payment. It provides a unique opportunity for first-time buyers, young professionals, and those with strong finances but limited savings to own a home faster, especially through the first home guarantee.
With benefits such as faster homeownership, flexibility in savings allocation, and potential investment opportunities, it’s a good idea to use no deposit housing loans because no down payment by mortgage broker makes it an easier and more common way for first home buyers to step onto the property ladder while maintaining financial stability.
What is a no deposit home loan?
No deposit home loan is suitable for you if you are a first-time home buyer with a stable income and may be eligible for the first home owner grant! You may be able to buy your dream house faster, and it allows you to finance the property value without using your own money or an upfront deposit. However, if you decide to acquire a residence with no deposit, you must have a guarantor as a condition of approval by lenders.
A guarantor will provide equity to secure the loan and is usually a parent or immediate family who already owns their property or has a high level of equity. However, the guarantor is not the one who will contribute money to the home loan. The borrower will make the scheduled repayment. At the same time, the guarantor loan may be responsible for the borrower’s debt.
How does a no-deposit home loan work?
Some specialist lenders may offer 100% loans to low-risk borrowers who fit their strict criteria. So, ensure you already fulfil their criteria by having a guarantor and high-income professional to make getting a no-deposit home loan easier, as you may be able to use the first home guarantee.
They don’t need the upfront savings like a traditional home loan that offers 5-20% of the deposit. Instead, they use other ways to offer, like you should have a guarantor, lender-specific programmes or government support. In addition, you can acquire a residence faster than with traditional home loans, particularly if you utilize the family home guarantee.
No deposit home loan options
Guarantor loan
In the context of no-deposit home loans, a guarantor loan means that a borrower can buy a property without putting down a cash deposit because a family member (usually a parent) guarantees part of the loan against the equity in their own property. Instead of the usual 20% deposit, the guarantor offers their property as security to cover part of the loan (usually up to 20%). This helps the borrower avoid Lenders Mortgage Insurance, which is generally required for loans over 80% of the property’s value.
Using equity as a deposit
If you are scheming to have a second home but don’t want to save a cash deposit, then using equity is a good idea! Using equity as a deposit means leveraging the value of an existing property instead of saving cash for a new home deposit and is suitable for buyers with equity or existing property. You can seek independent finances by having a secondary home and property to invest in.
This approach is typical for upgraders, investors, and homeowners looking to buy another property without having to save a traditional deposit. Moreover, Home equity loans often have better rates than personal loans. However, it’s essential to calculate your borrowing capacity, consider the risks, and ensure manageable repayments, especially if you are a single parent. Your current home may be at risk if you can’t meet repayments.
Gifted home deposit
Do you know that your parents could gift you the money for a deposit so it could avoid the genuine savings requirement? Yes, you don’t have to save a deposit or wait three months to show your genuine savings with a gifted home deposit. In addition, some lenders or banks offer you the option to borrow up to 95% of the property value with no strings attached.
However, there are some requirements, such as providing evidence like a letter from your parents, which we can give you to make it easy for both you and your parents! But there are additional requirements, such as your parents needing their state or territory before giving you the money for a deposit. You also don’t have to pay a higher interest rate, making it more manageable. This kind of deposit has the most straightforward procedure and process, so it is really popular for someone who wants to keep their savings!
Pros & cons of no-deposit home loans
Pros
If you are a first-time buyer or do not have the funds to deposit a mortgage, then no deposit loans might be the best option for you because they have many advantages! This housing loan system does not require an upfront deposit, which will help you as a first-time home buyer. Conversely, traditional housing loans have more extensive deposits that may not be recommended for first-time buyers. No deposit housing loan is the fastest way to purchase a residence.
Moreover, you don’t need to save for a house deposit for a long time as you can jump into the market. If you save for too long, it can also be detrimental because you might lose the chance to buy your dream house at that time, or it will have a price increase in the future. Having a housing loan more quickly is undoubtedly a significant advantage for you. Finally, you can also apply for government grants that offer no deposit loans and more accessible pathways to homeownership. At this point, we could agree that a home with a low deposit is beneficial, right, especially for those eligible for the first home owner grant?
Cons
Although it has many advantages, it is essential to note that there are also disadvantages to using a deposit property loan. Since it is not familiar enough to offer no deposit to borrowers, lenders and banks usually cannot provide no deposit mortgages. They sometimes ask you for a deposit as low as 5 – 10%. Also, borrowing 100% means more significant monthly repayments, which may be challenging for single parents.
So, you will have a higher loan amount, and the property guarantor will be very risky if you don’t meet the lenders’ requirements. Therefore, no deposit loans have high interest rates, and strict criteria apply, which may include needing to provide a guarantor. If you still want a home loan, you must have enough preparation and research in advance to reduce any risky things that happen.
What are the lending criteria for no-deposit home loan?
Getting a no deposit home loan is a complicated process compared to a traditional mortgage. You will find more strict criteria than other property loans because lenders take a higher risk when borrowers use no deposit property loans. Some essential criteria for borrowers are having a guarantor and having a strong and stable income. The guarantor serves as a liability, and they may give their property as collateral, which can help secure a new home loan. They are usually the borrower’s parents or close family.
Financial circumstances such as having a stable income are also a guarantee to lenders because demonstrating your regular employment and 2 years of financial statements prove that you are worthy and trusted to get a no deposit property loan. You should have a good credit score (typically 700+ in Australia) and a clean credit history, such as no bankruptcies or late payments, to qualify for a new home loan.
Frequently Asked Questions
Is it possible to buy a house without a deposit?
Yes. You are able to buy a home without a deposit because some lenders will approve it with several criteria, such as having a guarantor and being financially stable. However, some lenders require at least a deposit as low as 5% -10 %; some pathways allow you to secure a property loan with zero upfront savings.
Do I have to pay LMI if I have a guarantor?
No, you typically do not need to pay Lender’s Mortgage Insurance if you have a guarantor. A guarantor reduces the lender’s risk by offering part of their property as security, allowing you to borrow even no deposit of the home loan without a deposit or LMI.
Can I get a home loan with no deposit without a guarantor?
It may be possible to buy a home loan without a guarantor, but you will have more strict rules from lenders. However, lenders prioritize someone who has a guarantor may be more favorable in securing a loan. guarantor to secure the home loan, as it reduces their risk. While getting a no deposit home loan without a guarantor is possible, it requires substantial financial standing, alternative funding options, or government support programs like the first home owner grant.
Conclusion
No deposit home loans offer a valuable opportunity for aspiring homeowners to enter the property market without a large upfront deposit. With benefits such as faster homeownership, financial flexibility, and increased accessibility, these loans can make owning a home a reality. However, it’s crucial to review the terms, interest rates, and eligibility criteria to ensure they suit your long-term financial plans.
Additionally, Professional Home Loans provide tailored financing options for professionals, offering competitive rates and flexible terms designed to support their unique financial situations.
Contact us today to explore home loans for your needs and take the next step towards securing your dream home!