Compare low deposit home loans for July

A low deposit home loan usually means having a deposit of 10% or less of the property's value. Compare low deposit home loan options from a range of lenders from online to well-known bank brands below.

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Low Deposits Knowledge Hub

What is a low deposit home loan?

The standard for home loan deposits in Australia is 20% of the property’s purchase value, but for those struggling to save for their first deposit, it’s possible to opt for a low deposit home loan.

With a low deposit home loan you only pay around 5-10% of the property’s value, instead of the typical 20% deposit.

Low deposit home loans have some drawbacks, including higher interest rates, stricter lending criteria and the added expense of lenders mortgage insurance (LMI) in some cases.

The upside of a low deposit home loan is that it gets you on the property ladder sooner, which may be particularly helpful for first home buyers, or anyone looking to get ahead of potentially rising property prices.

Understand loan-to-value ratio

A low deposit home loan means you’ll have a high loan-to-value ratio (LVR). Your LVR refers to the amount of money you need to borrow in proportion to the property’s value.

Lenders typically want you to have a home deposit of at least 20%, which gives you a loan-to-value ratio of 80%. If your LVR is more than 80%, it’s likely you’ll be deemed a riskier borrower and may need to pay a higher interest rate.

This is important to keep in mind with low deposit home loans – if you’re taking out a mortgage with an LVR of more than 80%, you might pay more interest in the long run. You may also need to pay lenders mortgage insurance.

Will I have to pay lenders mortgage insurance?

Low deposit home loans of under 20% generally require you to pay lenders mortgage insurance.

It’s a type of insurance that protects the lender if you’re no longer able to meet your home loan repayments, but it’s a cost the lender passes on to you.

The cost of LMI will depend on the amount you’re borrowing and your LVR.

There are ways to avoid paying lenders mortgage insurance, such as government home loan grants that can waive the cost of LMI you’d typically have to pay, even if you have a deposit as small as 5%.

Other ways to avoid paying lenders mortgage insurance include asking a family member about going guarantor on your home loan or using a substantial cash gift.

Lenders mortgage insurance can be paid in a one-off instalment, but it’s often lumped into the overall cost of your home loan so you pay it off over time. While this spreads out the cost over time, it means it will also accrue interest.

LMI doesn’t protect you if you can’t meet your mortgage repayments, so you would need to take out income protection or mortgage protection insurance to cover you in case of illness. injury or redundancy.

Government support for low deposit home loans

A low deposit home loan can be a helpful way of getting into the property market, but higher interest rates and LMI are added expenses that can be a deterrent.

However, if you’re a first home buyer in Australia, you may be eligible for First Home Owner Grants (FHOGs) or other first home buyer schemes.

With the First Home Guarantee, for example, the Australian government acts as your guarantor. This means the government provides additional security by adding to your home loan deposit.

Keep in mind that the government’s home loan schemes are kept to participating lenders, so you’ll need to check that your mortgage provider is participating. Income limits also apply and not everybody is eligible.

Pros of low deposit home loans

If you’re looking to get into the property market now, whether as an investor or first time home buyer, here are some advantages to getting a low deposit home loan:

  • Less time saving for a deposit: Low deposit home loans can make homeownership accessible if you’ve been unable to save a 20% deposit. It’s particularly beneficial for first-time home buyers who may struggle to save while also paying rent.
  • Get on the property ladder sooner: A low deposit home loan has the potential to get you into your home faster than you may have otherwise if you’d saved for the full 20% deposit. It may also help you avoid rising house prices.
  • Hold more money back: With a lower initial deposit, you may be able to maintain a substantial emergency fund. If you add your savings to an offset account, it could significantly lower your interest.
  • Government schemes: If you’re a first home buyer, chances are you may be able to get your low deposit loan backed by the government, which usually means an exemption from paying lenders mortgage insurance.

Cons of low deposit home loans

While a low deposit home loan can be useful for borrowers looking to get on the property ladder early, there are some drawbacks that you should consider:

  • Lower home equity: A smaller deposit means you’ll start with lower home equity. Low equity means a larger loan and higher repayments. You could also slide into negative equity, which could be a problem if you run into trouble and need to sell.
  • Higher interest rates: Lenders see low deposit home loans as more risky, so a small deposit generally means you’ll be met with a higher interest rate than if you had a deposit of at least 20%.
  • Lenders mortgage insurance: If your deposit is less than 20% of the property’s value, you will usually be required to pay lenders mortgage insurance. It’s a fee that protects the lender, not you (the borrower), if you can’t repay the loan.

How can I calculate my home loan repayments?

You can estimate your repayments with Mozo’s free home loan repayments calculator.

Just plug in your loan amount and term and our calculator will instantly tell you what your monthly repayments will be so that you can begin budgeting.

Applying for a low deposit home loan

The application process for a low deposit home loan can involve a fair amount of preparation. Generally, you should check you have your documentation in order, such as:

  • Identification (driver’s licence, passport)
  • Proof of income
  • Liabilities (such as debts)
  • Credit score

It’s a good idea to do your research for the loan you’re looking to get, as there are other costs associated with a home loan such as stamp duty and legal fees.

FAQs: low deposit home loans

Can I get a home loan with a 5% deposit?

Yes, there are various lenders that will allow you to take out a home loan with a deposit as low as 5% (which gives you a 95% loan-to-value ratio).

According to the Mozo database, borrowers with a low deposit will be able to pick between a variety of big banks, credit unions and online lenders, though the interest rates on offer vary greatly.

Do low deposit home loans have the same features as standard home loans?

Low deposit home loans usually come with the same features as standard home loans, but they tend to have higher interest rates and stricter lending criteria.

What fees do I need to pay on a low deposit home loan?

Low deposit home loans can come with the standard fees you’d pay for with a typical home loan, including application, property valuation, settlement and service fees.

You may also need to pay lenders mortgage insurance (LMI), unless you’re eligible to buy through a government home loan grant.

JP Pelosi
JP Pelosi
RG146
Managing editor

Managing Editor Jean-Paul (JP) Pelosi leads the editorial team, with over 20 years of experience writing for top outlets like The Guardian, The Sydney Morning Herald and News.com.au. JP's expertise in home loans and property is complemented by his rich background at major financial firms including CommBank, Suncorp and Amex. Holding a Master's in Communications and international experience in journalism, JP combines passion with skill and has a unique ability to apply this editorial experience and financial knowledge to advise the team on how to create engaging financial content for Australian consumers.

Jack Dona
Jack Dona
RG146
Money writer

Jack is RG146 Generic Knowledge certified, with a Bachelor of Communications in Creative Writing from UTS, and uses his creative flair to cut through the financial jargon and make home loans, insurance and banking interesting. His reader-first approach to creating content and his passion for financial literacy means he always looks for innovative ways to explain personal finance. Jack's research and explanations have been featured in government publications, and his work is regularly featured alongside major publications in Google's Top Stories for Insurance.

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