How to Get a Mortgage With No Deposit in Australia

There are 2 ways you can get a mortgage with no deposit in Australia:

• Guarantor Mortgage.

• Using your equity in another property.

To get a no-deposit home loan is a tempting matter, especially since property values are soaring and lenders require you to deposit 20% of the home’s value.

Thankfully, you do have the option to get a mortgage without a deposit. It helps a lot since saving up for a deposit, especially in today’s economy, is a nightmare for many Australians.

We’ll cover everything about no-deposit mortgages in this guide, how you can get one, and more.

Understanding Zero-Deposit Mortgages

Let’s start by understanding mortgages with no deposit.

Traditional mortgages usually require you to pay 20% of the home’s value as a deposit. No-deposit mortgages, on the other hand, allow you to get a mortgage with zero deposit.

That’s right—it’s a tremendous help, especially to first-time buyers who struggle to save or want to set foot in the home loan market sooner.

However, bear in mind that mortgages with no deposit are not very common across Australia. And they do come with a list of disadvantages. 

Low-deposit home loans are much more common, but they have the caveat of requiring borrowers to pay at least a 5% deposit.

Pros and Cons of a Mortgage With No Deposit

So, no-deposit mortgages come with a fair share of advantages and disadvantages. Let’s look at what exactly they are.

Pros:

• Allows you to enter the home loan market with zero deposit, eliminating the need for any substantial savings.

• Allows first-time buyers to get a mortgage sooner, helping them become homeowners without having to wait for months or years.

• Helps you lock in on the current market as soon as possible, eliminating the potential for a rise in property prices or interest rates.

Cons:

• Interest rates are usually on the higher side since the bank risks more without taking a deposit.

• You’re required to pay Lenders Mortgage Insurance (LMI) since banks charge it on home loans with less than a 20% deposit.

• The process and paperwork involved are usually lengthy and complex as compared to standard home loans.

• Not all lenders offer no-deposit mortgages, so you’ll have to do some extensive research.

• Some lenders impose lower borrowing capacity since they risk more without a deposit.

• Higher risk of negative equity on the purchased property since you start with no equity.

2 Ways to Get a Mortgage With No Deposit

Mortgages without a deposit are not very common in Australia. However, you do have some options, but you’ll have to do some deeper hunting to find any of the small number of lenders that provide them.

That’s where Koalify comes in as your expert mortgage broker. At no extra cost, we’ll help you find the right mortgage with the right lender to meet your unique homebuying needs.

We strive to serve impartially and in your best interests, guiding you with a highly personalised service that makes your mortgage process easier and faster.

Want to find home loans that fit your needs? Get in touch with us today for the offers.

Guarantor Mortgages

One of the best options to get a no-deposit home loan is to look for a guarantor mortgage. This type of mortgage allows you to bring in a family member or friend to act as a guarantor, helping you secure your loan with their property or savings.

This does lower the interest rate for you, but puts the guarantor in a significant financial risk. However, the guarantor can be removed from the loan once you repay the guaranteed portion of the loan or when the debt level falls below 80%.

Equity in Another Property

Have equity in another property that you own? You can use that as security to get a mortgage with no deposit.

Although this is possible, it’s important to keep in mind the fact that your equity in another property is only one of the factors that lenders look at to verify your eligibility. Their primary concerns are your salary and ability to afford a loan, so make sure you are in good financial standing.

Alternatives to No-Deposit Mortgages

Your options for a mortgage with no deposit are limited. And not all lenders provide this option, thus necessitating a thorough search for the ideal lender.

Since it all comes down to saving on the deposit, you can still look into low-deposit mortgages. Although they don’t guarantee zero deposit, you can essentially cut your deposit to as low as 2%.

And more lenders offer low-deposit mortgages, so accessibility is even better.

Home Guarantee Scheme (HGS)

The Home Guarantee Scheme (HGS) is an initiative by the Australian Government to help eligible Australians own a home sooner.

According to the HGS eligibility criteria set by Housing Australia, the scheme is available to all eligible Australian permanent residents, which was recently expanded from only Australian citizens.

This guarantee scheme comes in three different types, each designed to cater to different groups of Australians.

• First Home Guarantee (FHBG): This scheme will assist homeowners who haven’t owned a property in Australia in the last 10 years with up to 15% of the deposit. 

• Regional First Home Buyer Guarantee (RFHBG): Made for home buyers who have not owned a property in Australia in the last 10 years, but to help them buy a home sooner in a regional area. Provides assistance with deposits for up to 15% percent, lowering your deposit to as low as 5%.

• Family Home Guarantee: Helps eligible single parents or legal guardians to purchase a home sooner with a deposit as low as 2%. 

Each of the guarantee schemes has different eligibility criteria, so make sure you refer to the official Housing Australia website.

Shared Ownership Scheme

The Australian government introduced this Help to Buy shared equity scheme to help eligible home buyers buy a home sooner.

In this scheme, the government will invest up to 30% of the value of the home you’re looking to buy. This means your total mortgage would be for up to 70% of the home’s value, bringing down your mortgage and deposit required.

You will co-own the property with the government, with the option to gradually buy back the rest of equity in the home if you choose to.

In case of sale of the property while still co-owning with the government, a part of the sale amount will go to the government depending on how much equity they own.

LMI Waiver for Professionals

Did you know that professionals in select industries are able to get up to 95% LVR? This means they can pay deposits as low as 5%.

You can get this through the LMI waiver benefit offered by lenders to eligible homebuyers. LMI waiver basically means exempting you from having to pay LMI even if your deposit amount is lower. 

It’s currently available to professionals in fields like medicine, accounting, and law.

Pay LMI 

Another option is to pay LMI for lower deposits. Since LMI is the lender’s security for lower deposits, you can choose to pay that rather than having to put in the entire 20% deposit.

Tips for Getting Approved for a Zero-Deposit Mortgage

Even though getting a mortgage with no deposit is possible, you still need to make sure you have a decent financial background to increase your chances of approval. 

A good financial background is essential for any type of loan, but its importance inflates to a much higher degree when it comes to no-deposit mortgages.

Check Your Credit Score

The first thing lenders check for is your credit score. It clearly shows how good you are at managing debt and paying back on time.

Before applying, check your credit score. It has to be strong to secure home loan approval. On top of approval, a solid credit score also gives you more power to negotiate and secure favourable loan terms.

Manage Existing Debts

Lenders always want to see if you have manageable debt levels. 

Having too much debt to your name does not look good on paper, and you must make sure your debt is only an affordable percentage of your total income before applying.

It’s also a good idea to consolidate your debt if you have multiple sources to pay back to. 

Owing one lender with less debt is always better than owing multiple lenders with too much debt.

Stabilise Employment and Income

Having a steady income and stable job can easily prove your ability and capacity to pay back on time. They also use this to determine your manageable debt level.

If your job is stable and pays on time, and you can prove it with pay slips and an employment certificate, you’ll have a better standing with your application. It simply makes your lender more willing to consider approving the no-deposit mortgage for you.

Mortgage With No Deposit: Risks and Considerations

Getting a mortgage with no deposit comes with its own set of risks. That’s why we have these important considerations to help you foresee all the short-term and long-term challenges that come with it.

• Higher Interest Rates: A no-deposit mortgage usually comes with higher interest rates to compensate for the lack of security, which ultimately means higher monthly repayments.

• Negative Equity Risks: Since you start with no equity, you will end up owing your lender more than what your property is worth if it decreases in value in the future.

• Additional Fees and Conditions: No-deposit mortgages may involve additional fees such as LMI, application fees, legal fees, and more.

Homebuyers often overlook some of these risks and many more when hunting for a mortgage. That’s why it’s vital to work with someone experienced and knowledgeable about home loans so that you don’t lose money in the short term or long term.

That’s what Koalify does—we help homebuyers find the ideal mortgage with the ideal lender by providing unbiased, personalised guidance from start to finish. 

The best part? You don’t pay us a dime. We do the heavy lifting and offer expert guidance to help you secure the right mortgage at no extra cost. Explore the range of home loans you qualify for from 30+ top lenders across Australia. Contact us today to unlock your offers!

Mortgage With No Deposit: Frequently Asked Questions

Can I get a mortgage with a low credit score and no deposit?

Getting a mortgage with no deposit is possible if you have a guarantor or equity in another property.

However, having a low credit score means you are a risky borrower to the lenders, which decreases your chance of getting any kind of mortgage, let alone a no-deposit mortgage.

Are there any alternatives if I don’t qualify for zero-deposit mortgages?

Yes, you can consider low-deposit mortgages if you’re not eligible for zero deposit. You can pay as little as a 2% deposit with these low-deposit options:

• Home Guarantee Scheme (HGS)

  • First Home Guarantee (FHBG)

  • Regional First Home Buyer Guarantee (RFHBG)

  • Family Home Guarantee

• Shared Ownership Scheme

• LMI waiver for professionals

• Pay LMI to lower deposit

Will my monthly payments be significantly higher with a no-deposit mortgage?

This entirely depends on your lender and your financial background. Usually, mortgages with no deposit have a higher interest rate than standard mortgages, but your lender may increase it even further if your financial background is not very convincing. 

What if I don’t have family members to act as guarantors?

If you don’t have guarantors, your next best option is to access your equity in another property.

However, if you’re open to a mortgage with a low deposit rather than no deposit at all, you can try the alternative options to no-deposit mortgages in this guide.

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