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- Got little or no deposit available?? ... Read on!
No Deposit* home loans
Do you want to become a home owner but have little or no deposit available?... If so then a 100% home loan or no deposit* home loan may be best for you.
There are 2 loan types that we will explain in this section.
- The first are 100% home loans that can be done at standard interest rates.
- The second are 106% loans which can be done in some limited circumstances however interest rates are approximately 0.8% higher than normal 100% loans. (Update - please note that due to the sub-prime mortgage crisis in the USA in early 2008, many lenders offering loans greater than 100% have temporarily withdrawn funding until further notice)
100% Home Loans
100% home loans are when the bank lends you 100% of the value of your home. In other words, if you buy a $300,000 home, the lender gives you a loan of $300,000. This may be suitable for you if you only have a small amount of deposit available and would otherwise be unable to settle the purchase with a standard 95% loan..
There are a number of lenders who now do "no deposit home loans" so choosing the right one is important as they vary quite a bit in interest rate and conditions. In reality, the name "No deposit" that the various lenders are using in their advertising is somewhat misleading because only properties up to a certain price will truly be "No deposit".
Using a 100% Home Loan, whether or not you need any deposit at all is dependent on the cost of the property, whether or not you are a first home buyer, and the state or Australia that you purchase in. As a rough guide for NSW ....
- a $220,000 property would require $0 - $1,000 deposit
- a $300,000 property would require about a $2,000 - $3,000 deposit
- a $400,000 property would require about a $4,500 - $6,500 deposit
- a $500,000 property would require about a $8,000 - $10,000 deposit
The reason for the varying deposit requirement is that a property purchased at any particular price will always have extra buying costs. These may include conveyancing fees, loan application fees, mortgage registration fees, and mortgage insurance (or equivalent). At lower property price levels (ie up to ~$220,000), the First Home Owners Grant of $7,000 is sufficient to cover these extra buying costs. The lenders have seized on this fact to advertise the "no deposit required" tag line. As the property price increases however, the extra buying costs will come to a point where they exceed the $7,000 First Home Owners Grant and any property purchased above this level using a 100% loan will require at least some deposit.
if you are buying in state other than NSW, the amount of deposit you require (compared to the list above) is dictated by the stamp duty exemptions applicable. More information on comparative stamp duty costs is available in our First Home Buyer e-Course (see below in blue) or by clicking our stamp duty page.
Finally, if your desired property price dictates that you have to have provide a deposit, most lenders are flexible on where that deposit comes from. For example that deposit could come from your own savings, or from a gift from family or friends, or even from a loan from another source (ie a personal loan or even drawings from a credit card may be acceptable).
Remember, our service is provided completely free to you so if you are looking to buy a home or investment property in the near future, we recommend the following.. Firstly, you can click on the following link to go to our online enquiry form. It only takes 5 minutes to complete and with this information we can assess your loan options. This is not a loan application and it's no obligation..... it just allows us to work out your loan capacity and inform you of what position you are in. Also, when we send you your assessment email, we'll also include parts 1 and 2 of our free Home Loan Advice Centre e-Course. The e-Course is a 35 page indepth guide that gives you all the information you need about buying property in Australia. It goes through the common methods of purchasing property and gives an indepth description of each stage in the entire home buying process. It's especially usefull to first home buyers. Click here to see a sample of what the e-Course contains (pdf opens in new window) |
106% Home Loans
If you want to purchase a property where even a 100% home loan is not sufficient then this may be your final option. These loans are available up to 106% of purchase price and up to $900K maximum loan amount. Some examples of people who may fit into this category might be as follows. (Update - please note that due to the sub-prime mortgage crisis in the USA in early 2008, many lenders offering loans greater than 100% have temporarily withdrawn funding until further notice)
- First Home Buyers with zero deposit but wanting to buy a higher priced property than would be allowed using just a 100% home loan (ie greater than $250K and up to $900K)
- A Non-First Home Buyer with little or no deposit who wants to purchase an owner occupied property but won't receive any stamp duty exemptions nor the First Home Owners Grant (up to 900K loan amount)
- A property investor who wants to put down zero deposit funds to purchase an investment property and who wants maximum possible negative gearing benefits.
As you can imagine the criteria to determine if you would qualify for such a loan is stricter than normal 95% or 100% home loans.
- The interest rate is higher (by about 0.8%)
- The amount of income required to pass serviceability is higher than would be required under other "standard" type loans
- Repayments can only be paid on a "Principle and Interest" basis.
If you believe that this type of loan is most suitable to your situation then please contact us to find details or fill in the online enquiry form on our website.
To find out more on 100% loans or no deposit* home loans please call Home Loan Advice Centre on 1300-729-177 or 02-9210-1000 or see the following links:
Application process
*Note - although many lenders call their 100% home loan a no deposit home loan, it is only truly "no deposit" in certain circumstances needed. Such circumstances are where the First Home Owners Grant is sufficient to cover the buying costs (ie the sum of the various costs of purchase that are over and above the actual property price ie loan application fee, any stamp duties payable, your conveyancer's costs etc). As an approximation a first home buyer in NSW using a 100% home loan can only buy a property up to $220,000 if they have no deposit whatsoever. (Remember they could go higher without a deposit but only if they arranged a loan of 106% ... with higher interest rates). 100% loans however, are very useful for first home buyers with little deposit. An applicant with sufficient income and a deposit as low as ~ $10,000 can purchase a property up to $500,000.
