The RBA has raised the official cash rate to 4.35%. Chat with us today to make sure you’re not overpaying your loan.

The RBA has raised the official cash rate to 4.35%. Chat with us today to make sure you’re not overpaying your loan. The RBA has raised the official cash rate to 4.10%. Chat with us today to make sure you’re not overpaying your loan.

How to Buy a House with No Deposit: A Step-by-Step Guide

Saving for a deposit is tough, but did you know you can buy a house with no deposit? Check out the low-deposit and no-deposit loans to own your home now.
joseph@itssimple.com.au

joseph@itssimple.com.au

January 27, 2023

buy a house with no deposit

Saving for a deposit is one of the biggest obstacles in buying a home, but did you know you can buy a house with no deposit?

Purchasing a home is the biggest and most expensive financial commitment you make. Understanding the available schemes and options can help you buy your home sooner, choose the one that best suits your situation and avoid paying additional costs, such as Lender’s Mortgage Insurance (LMI).

Here, we outline tips to help you save for a house deposit, the government schemes for first-home buyers and no deposit and low deposit loans that can help you secure the keys to your dream home.

buy a house with no deposit

How to save for a house deposit?

Aside from your home loan, another hefty cost you need to consider is your deposit. Typically, banks and lenders require 20% of the property’s purchase price. So, saving for a house deposit is challenging, especially with the high cost of living and current interest rates in Australia.

However, having the right strategies and a clear goal in mind can help you improve your budget and save for a deposit.

budgeting

Budgeting

The first step to boosting your budget is to track your income and expenses. Through this, you can set a realistic goal and have a clearer idea of where you can cut costs and prioritise.

Next, try to reduce your spending. For example, you can look for subscription services you can cancel, cook your meals instead of dining out, set a separate savings account for your house deposit or set a spending limit.

Whatever strategy you decide on, make sure you stick to your budget so that you can achieve your savings goal. All you need is discipline and commitment, and you can finally apply for the home loan you deserve.

First Home Super Saver Scheme

If you’re having a hard time saving for a deposit, one option that can help you is the First Home Super Saver scheme (FHSS). Through this, you can use your voluntary contributions from your super as your house deposit to help you purchase your first home faster.

The FHSS scheme allows you to have a maximum of $15,000 contribution and release for one financial year. Then, from 1 July 2022, you can have a maximum of $50,000 releasable amount across all years.

To qualify for the FHSS scheme, you should:

  • Have never owned property in Australia 
  • Be at least 18 years old 
  • Never had an amount released from superannuation under the FHSS scheme
  • Occupy the property for at least six months within the first 12 months you own it

You can watch what Joseph Daoud, It’s Simple Finance’s managing director, reveals about the FHSS scheme:

Financial counselling 

If you’re feeling overwhelmed with your finances, you may also consider seeking financial counselling. Financial counsellors are professionals who can help you assess your financial situation, provide expert advice and assist you in money management strategies.

By seeking help, you can develop a smarter budget, take control of your finances and make better financial decisions that can aid you in saving more for your deposit.

Government assistance for first-home buyers

If you’re struggling to save for a deposit, there are available government grants and schemes for first-home buyers that can give you a leg up on the property market:

First Home Owner’s Grant

The First Home Owner’s Grant (FHOG) is one-time cash assistance that can help you buy your first home faster. These grants can range from $7,000 to $30,000 depending on the states and territories.

fhog-territories

While it may not be enough to cover a 20% deposit, the grant is still a big help. In most states, you should meet the price caps and certain criteria to qualify for the FHOG.

Eligibility 

The criteria differ across each state and territory. But typically, you should:

  • Be an Australian citizen or a permanent resident 
  • Be at least 18 years old
  • Live in the house for at least six months
  • Not have previously received the FHOG 
  • Have never owned a property in Australia before 1 July 2000

Aside from the grant, you may also qualify for stamp duty exemptions and concessions as a first-time buyer. You can check your state or territory’s certain criteria here. To make things easier, you can also talk with our trusted brokers, and we’ll do all the work for you.

Help To Buy Scheme

Another scheme that can help you is the Help to Buy Scheme. It is a type of shared equity scheme where the government contributes up to 30% of the property’s purchase price for existing homes and up to 40% for new homes.

Through this scheme, you can deposit as low as 2% and avoid LMI fees. While the smaller repayments and lower interest rates are promising, note that the government owns a share of your property unless you buy it back over time.

No deposit home loans 

If you don’t qualify for the grants and schemes above, you can still buy with no deposit:

guarantor-equity-gifted-deposit

Guarantor home loans

If your parents own a property with enough equity in their home and are willing to help you with your house deposit, you can apply for a guarantor loan. A guarantor is a direct or immediate family (usually parents) who allows you to put up a part of their equity as security for your loan.

Through a guarantor home loan, you can borrow more than 80% of the property value without paying LMI. However, remember that this type of mortgage is risky, so you must meet strict lending criteria to qualify.

In case you default on your home loan repayments, your guarantor is liable for your loan. Make sure you properly discuss this with your guarantor before jumping into this option to minimise any risks.

Equity home loan

If you already own a property, a home equity loan lets you borrow against your equity. In simpler terms, equity pertains to how much of your home you own. To calculate your home equity, take the difference between your property’s market value and your outstanding loan balance.

For example, if the current market value of your property is $850,000, and your balance is $400,000, your raw equity is $450,000.

However, you may not be able to access your entire equity. Depending on your situation, the bank or lender will let you borrow up to your usable equity.

Your usable equity is 80% of the property’s market value minus your outstanding loan. Based on the previous example, your usable equity is $280,000:

Property’s market value: $850,000 x 0.80 = $680,000

Outstanding loan: $400,000

Usable equity: $680,000 – $400,000 = $280,000

Gifted deposit

If you don’t have a guarantor or equity, your parents can still help you with your deposit. A one-off financial gift from your parents can go towards your deposit and improve your borrowing power.

Let’s say they give you a large sum of money; some banks and lenders may accept that money as your deposit. This way, you won’t have to save a large deposit yourself to fund your home purchase. 

Low deposit home loans

fhog-table

First Home Guarantee

The First Home Guarantee (previously known as the First Home Loan Deposit Scheme) targets eligible first-home buyers wanting to purchase a property with a low deposit. Through this initiative, you can deposit as low as 5% without paying tens of thousands in LMI.

Starting from 1 July 2022 to 30 June 2023, there are a maximum of 35,000 guarantees available each financial year. You can view the property price caps below.

Eligibility

To qualify for the first home guarantee, you should:

  • Be an individual or a couple (married/de facto) 
  • Be an Australian citizen 
  • Be at least 18 years old 
  • Earn up to $125,000 as an individual or $200,000 as a couple
  • Occupy the purchased property 
  • Be a first-time buyer who hasn’t owned or had an interest in a property in Australia 

Family Home Guarantee

Also under the Home Guarantee Scheme, the Family Home Guarantee helps eligible home buyers to deposit as low as 2% without paying LMI or using a guarantor. This guarantee is specifically designed for single parents with at least one dependent child.

Unlike the previous scheme, the Family Home Guarantee is available to first-time buyers and previous homeowners. There are 5,000 guarantees available each financial year.

Eligibility

You should:

  • Be single (No spouse and/or a de facto partner)
  • Have at least one dependent child 
  • Be the natural or adoptive parent of the child

You shouldn’t have:

  • A freehold interest in real property in Australia 
  • A lease of land in Australia 
  • A company title interest in land in Australia
First Home Guarantee and Family Home Guarantee Property Price Cap Table
StateCapital City and Regional Centre*Rest of State
NSW$900,000$750,000
VIC$800,000$650,000
QLD$700,000$550,000
WA$600,000$450,000
SA$600,000$450,000
TAS$600,000$450,000
TerritoryAll areas
ACT$750,000
NT Regional$600,000
Jervis Bay Territory & Norfolk Island$550,000
Christmas Island and Cocos (Keeling) Islands$400,000

Source: NHFIC

Regional First Home Buyer Support Scheme

If you’re planning to purchase in a regional area, you may consider the Regional First Home Buyer Guarantee (RFHG). This scheme assists eligible regional first-home buyers to deposit as low as 5% and avoid LMI costs. From 1 October 2022 to 30 June 2023, 10,000 spots are available to eligible applicants.

Regional First Home Buyer Guarantee Property Price Cap Table
State#Regional Centre*All other Regional Areas
NSW$900,000$750,000
VIC$800,000$650,000
QLD$700,000$550,000
WA$450,000
SA$450,000
TAS$450,000
Territory#Regional area
ACTNot applicable
NT Regional$600,000
Jervis Bay Territory & Norfolk Island$550,000
Christmas Island and Cocos (Keeling) Islands$400,000

Source: NHFIC

Alternative ways to finance your home deposit 

If you don’t qualify for the mentioned grants and schemes above, there are still other ways you can finance your home deposit:

Borrow from family

Borrowing from a family member can be a great source of your home loan deposit. Instead of applying for a traditional loan from a bank, borrowing from your loved ones can save you a significant amount if you both agree that you won’t need to pay any interest. Moreover, your family may be more lenient with your repayment amount and schedule.

Apply for a personal loan

If your family can’t loan you money, you can also use a personal loan as your house deposit. To qualify for a personal loan, lenders require you to meet stricter criteria, such as a high income, clean credit history, minimum existing debts and more.

However, this option carries a huge risk, so many lenders don’t recommend it. Since you take out two loans at the same time, you need to ensure you can meet your repayments for both personal and home loans.

Improving your chances of securing no deposit home loans

Credit repair

One of the biggest obstacles in qualifying for a no deposit home loan is a bad credit history. If your credit score is low, it may affect your application. So, fixing it can boost your chances of getting approved.

To help you improve your credit score, consider the following:

  • Make sure your credit report is free from errors
  • Lower your credit card limit
  • Pay your bills on time
  • Pay off your debts
  • Avoid applying for multiple credits

As you make these changes, you can improve your credit score and potentially increase your chances of getting your home loan application approved.

Get debts under control

Another barrier is high debts. Since a home loan is a debt, getting your debts under control can show your lender that you are a responsible borrower. To help you manage your debts, you need to understand how much you owe and how much you earn.

Check where you can cut costs, and prioritise paying your debts and bills. Then, start small and snowball your repayments. This way, you can slowly but consistently reduce your debts.

Ready to buy your house without a deposit?

Saving a significant amount of money for your deposit requires a lot of effort. Therefore, developing smarter saving strategies can make it easier to afford your dream property. Knowing your choices can help you explore your best option and make better financial decisions about your home purchase.

To prepare and control your finance, get in touch with our mortgage brokers to get expert help from the start and beyond. It’s Simple will help you break down your options, enjoy tailored choices from the top 40+ banks and lenders in Australia and help you choose and apply for the right loan solutions that satisfy your goals and needs.

You can email us today at info@itssimple.com.au or book a free expert consultation at your preferred schedule.

You may also enjoy reading:

joseph@itssimple.com.au

joseph@itssimple.com.au

joseph@itssimple.com.au

joseph@itssimple.com.au

More Topics

The RBA has raised the official cash rate to 3.35%. Chat with us today to make sure you’re not overpaying your loan. The RBA has raised the official cash rate to 3.10%. Chat with us today to make sure you’re not overpaying your loan.