• Home
  • About Us
  • Services
    • Purchase A HomePurchase A Home
    • RefinanceRefinance
    • Joint ownershipJoint ownership
    • No Deposit LoansNo Deposit Loans
    • Interest-only LoansInterest-only Loans
    • Interest only loan with offsetInterest only loan with offset
    • Investment LoanInvestment Loan
    • Interest only Investment loanInterest only Investment loan
    • Car LoansCar Loans
    • Construction LoansConstruction Loans
    • Low Deposit LoansLow Deposit Loans
    • RentvestingRentvesting
    • Bridging LoansBridging Loans
    • Land Equity Construction LoanLand Equity Construction Loan
    • Land Investment LoansLand Investment Loans
    • Home loans for single parentsHome loans for single parents
    • Home loans for nursesHome loans for nurses
    • Home loans for DoctorsHome loans for Doctors
  • Process
  • Resources
    • BlogsBlogs
    • GuideGuide
    • CalculatorsCalculators
    • Property ReportProperty Report
  • Contact Us
1300 796 937
...
30, August, 2021 - News

5 minute Read

What is the lowest deposit for a mortgage?

Joseph Daoud

5 minute Read

For many Australians, trying to save up for a 20% deposit is becoming harder and harder to do, but luckily there are alternatives out there. Low deposit home loans can be applied for like any other mortgage and some lenders can even offer low deposit home loans with a deposit as little as 3% of the purchase value of the property.

Depending on the lender you could purchase a property with a low deposit of:

  • 3%
  • 5%
  • 10% or
  • 15%

Anything less than a 20% deposit is considered a high-risk loan so there are strict criteria you have to meet in order to be eligible.

Checking Your Eligibility

There are several things to look out for when checking your eligibility for a low deposit home loan. These include:

  • Credit History
    • You need a clean credit file. There can be no black marks in your credit history. So, if you have missed repayments on any previous personal loans, credit cards, or rent, you may be rejected. This is not as much of an issue with some lenders who are less strict with at deposit of at least 10%.
  • Your Income
    • If you have maintained a steady job with stable income, this will look very nice on your application as you will considered far less of a risk in comparison to someone who works sporadically.
  • Genuine Savings
    • It doesn’t matter how small the deposit is, lenders will require some amount of genuine savings. Many banks will reject your low deposit home loan outright if you don’t have at least 5% of the purchase price in savings. This isn’t a rule for all lenders though.
  • Level of Debt
    • If you already have a debt over 5% of the purchase price of the property, it will be more difficult to get a low deposit home loan approved. If you have any unsecured debt like from a personal loan or credit card, remove that debt as soon as you can to improve your chances.

Improving Your Credit Score

If you are worried about your credit score there are ways to try and improve it. These strategies are simple and include:

  • Attempting to pay all your bills on time and in full
  • Settling any outstanding balances you have
  • Avoiding overdrawing your credit cards
  • Limiting how often you apply for credit cards and loans

Genuine Savings

For savings to be considered ‘genuine’ they must be in the following forms:

  • Regular deposits into a savings account over a three-month period
  • Shares or managed funds held for three months
  • A term deposit held for three months
  • Some lenders can accept equity in another property

It really depends on how big your deposit is though:

  • 3-5% deposit: almost all lenders will require genuine savings
  • 10-15% deposit: most lenders will require genuine savings
  • 15-19% deposit: genuine savings not required from most lenders

The Advantages of Low Deposit Home Loans

  • Allows you to actually get into the property market, making low deposit home loans favourable for first home buyers. These loans also allow you to react quickly to opportunities that present themselves in the market.
  • Your money is going towards your own mortgage, rather than rent. Over time this will mean your financial position will increase in strength as you will own an expensive asset and be able to improve your credit rating by making your repayments on time and in full.
  • You can start generating wealth. The more you pay back on your mortgage, the more equity you build up. The more equity you build up, the more you can use to borrow against at a later date, meaning you may be able to purchase an investment property or something similar.

The Disadvantages of Low Deposit Home Loans

  • Interest rates can be higher. This is due to the riskier nature of low deposit home loans. When someone purchases a home with a 20% deposit, it’s likely that if they default on their repayments, the lender will get their money back from selling the home. The same cannot be said of low deposit loans, hence they must charge higher interest rates to make up for the added risk of losing money.
  • Lender’s mortgage insurance (LMI). This is also due to the higher risk involved with a low deposit home loan. If you don’t pay this upfront, it can add to the cost of the loan.

Guarantor’s

Guarantors are a direct or immediate family member that allows the equity in their own property to be used as security for your home loan. This guarantor can be used to cover the entire deposit or just part of it. This is a common option for many first home buyers. There is also a strict criterion to be eligible for these loans as well. Contact one of our brokers to find out if this is right for you.

No Deposit Home Loans

There are options for no deposit home loans but these are even more difficult to get than low deposit home loans. You must use a guarantor for this as there is no lender that will allow you to borrow 100% of the purchase price of the property plus the additional fees.

Speak to one of our brokers today if you are interested in a low deposit home loan and get on the fast track to buying your dream home.

More Articles.

...
June 21, 2022 - Blog
Choosing Between Fixed and Variable Rate Home Loans

Considering the recent interest rate hikes, more than ever, it’s important to consider all options to avoid paying more on your mortgage. Following the RBA’s 50-basis-point hike in the cash rate on 7 June 2022, it is no surprise that many banks increased their rates as well. Australia’s big four already announced that they would […]

Joseph Daoud

5 minute Read

...
June 16, 2022 - Blog
Surviving RBA’s highest rate hike in 22 years

The Reserve Bank of Australia’s highest single-raise cash rate in 22 years leaves everyone thinking, ‘How can I handle this?’ In a statement made by RBA governor, Philip Lowe, the Board decided to increase the interest rate by 50 basis points leading to the cash rate of 0.85%. So, where does this leave you? Here’s […]

Joseph Daoud

6 minute Read

...
May 15, 2022 - News
Price Caps Raised For Home Guarantees

Prime Minister Scott Morrison has just recently declared that the government’s Home Guarantee Scheme will have higher maximum property prices and more available places per year. From July 1, this price upgrade will qualify houses in two out of five (40%) suburbs nationwide for the scheme. This is up from 24.1% according to analysis by […]

Joseph Daoud

3 minute Read

Let’s Have A
Chat.

Contact us

Pages

  • Home
  • About Us
  • Legal

Services

  • Purchase A Home
  • Car Loans
  • Construction Loans
  • Investment Loan
  • Low Deposit Loans
  • Refinance Home Loan

Resources

  • Blogs
  • Guide
  • Calculators
  • Free Property Report
  • Let’s Get Started
  • Contact Us

Legal stuff:

It's Simple 2022 © Its Simple Pty Ltd. Trading as It’s Simple Finance (Credit Representative 495852) is authorised under Australian Credit Licence 389328. ABN: 22 637 831 157 | ACN: 637 831 157

Interest Rates are correct as at 27/05/2021 and subject to change at any time. The interest rate provided applies for a 4 year fixed rate with a LVR of 80% or lower. The comparison rate is based on a loan amount of $150,000, over a 25 year term.

WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

Terms, conditions, fees and charges apply and your full financial situation would need to be reviewed prior to acceptance of any offer or product.

Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs.

We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.

Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.

Check out our Privacy Policy.