HOME LOANS
First home buyer loan guide and rate comparison
By Megan Birot
What are low deposit home loans?
A low deposit home loan is a mortgage that’s available to borrowers with a deposit of as little as 5-10%. The standard deposit requirement on many loans is 20%, but a low deposit loan offers a more accessible entry point.
Here’s how a low deposit home loan works:
- Lower deposit, higher loan amount: Instead of saving a full 20% deposit, you borrow more from the lender as a percentage of the value of the property you’re buying. In other words, your loan-to-value ratio (LVR) is higher (typically 80% or over).
- Lender’s mortgage insurance may apply: If your LVR is above 80%, you might have to pay for lender’s mortgage insurance (LMI), which protects the lender (not you) if you can't repay the loan. This can add thousands of dollars to your loan, but may be avoidable if you apply through a government scheme or have a guarantor.
- Often a higher interest rate attached: While you can buy a home with a low deposit, it often means paying a higher interest rate on your home loan, as lenders view loans with an LVR above 80% as higher risk.
Understanding LMI and its costs
Lender’s mortgage insurance is a one-off insurance premium that covers the lender against the risk of you defaulting on the loan. LMI is calculated on a tiered scale, based on your deposit and property’s value.
LMI doesn’t need to be paid upfront as it can be added to your loan. This just means you’ll be charged interest on it, increasing the total cost of your mortgage.
Each lender calculates LMI differently, but here’s how it can add thousands to a low deposit home loan.
Property value | |
Loan with 20% deposit | $600,000 |
Loan with 10% deposit | $600,000 |
Loan with 5% deposit | $600,000 |
Loan amount | |
Loan with 20% deposit | $480,000 |
Loan with 10% deposit | $540,000 |
Loan with 5% deposit | $570,000 |
Deposit amount | |
Loan with 20% deposit | $120,000 |
Loan with 10% deposit | $60,000 |
Loan with 5% deposit | $30,000 |
LVR | |
Loan with 20% deposit | 80% |
Loan with 10% deposit | 90% |
Loan with 5% deposit | 95% |
LMI amount | |
Loan with 20% deposit | $0 |
Loan with 10% deposit | $22,835 |
Loan with 5% deposit | $26,305 |
| Loan with 20% deposit | Loan with 10% deposit | Loan with 5% deposit | |
|---|---|---|---|
Property value | $600,000 | $600,000 | $600,000 |
Loan amount | $480,000 | $540,000 | $570,000 |
Deposit amount | $120,000 | $60,000 | $30,000 |
LVR | 80% | 90% | 95% |
LMI amount | $0 | $22,835 | $26,305 |
Low deposit vs a larger deposit
Low deposit mortgages are usually more expensive over the long term compared to a home loan where the borrower has a 20% deposit.
That's because you'll likely pay a higher interest rate, potentially have LMI to pay for, plus higher interest costs overall on account of the larger loan balance.
Here’s an example of what the difference may be on two comparable loans with a 6.00% interest rate and a 30-year loan term. The only difference is the deposit size.
Cost comparison: 5% deposit vs 20% deposit
Property value | |
Low deposit home loan (5%) | $600,000 |
Full deposit home loan (20%) | $600,000 |
Interest rate | |
Low deposit home loan (5%) | 6.00% p.a. |
Full deposit home loan (20%) | 6.00% p.a. |
Loan amount | |
Low deposit home loan (5%) | $570,000 |
Full deposit home loan (20%) | $480,000 |
LVR | |
Low deposit home loan (5%) | 95% |
Full deposit home loan (20%) | 80% |
Deposit | |
Low deposit home loan (5%) | $30,000 |
Full deposit home loan (20%) | $120,000 |
LMI cost* | |
Low deposit home loan (5%) | $26,305 (added to loan) |
Full deposit home loan (20%) | $0 |
Monthly repayments | |
Low deposit home loan (5%) | $3,575 (+$697) |
Full deposit home loan (20%) | $2,878 |
Total interest payable | |
Low deposit home loan (5%) | $690,749 (+$134,726) |
Full deposit home loan (20%) | $556,023 |
Total to repay | |
Low deposit home loan (5%) | $1,287,054 (+$251,031) |
Full deposit home loan (20%) | $1,036,023 |
| Low deposit home loan (5%) | Full deposit home loan (20%) | |
|---|---|---|
Property value | $600,000 | $600,000 |
Interest rate | 6.00% p.a. | 6.00% p.a. |
Loan amount | $570,000 | $480,000 |
LVR | 95% | 80% |
Deposit | $30,000 | $120,000 |
LMI cost* | $26,305 (added to loan) | $0 |
Monthly repayments | $3,575 (+$697) | $2,878 |
Total interest payable | $690,749 (+$134,726) | $556,023 |
Total to repay | $1,287,054 (+$251,031) | $1,036,023 |
Pros of low deposit home loans
Despite the extra costs, many borrowers still apply for low deposit home loans because of the benefits they offer:
Get into the property market sooner
Can help you buy a home quicker, without needing to wait years to save a 20% deposit. This can be a major advantage if property prices are rising as waiting could mean paying much more later. It also means you’ll start building equity as you make repayments on your loan – even with a smaller deposit.
Stop paying off someone else’s mortgage
Instead of paying rent to someone else, your repayments go toward your own asset. With a mortgage, every payment brings you closer to owning your home outright, rather than funding a landlord’s investment.
Free up funds for renovations
If you use a guarantor to secure your low deposit loan, you may not need to use all your savings upfront. This could leave you with extra funds to improve your property, potentially increasing its value over time.
Take advantage of government schemes
There are government grants and schemes that support low deposit buyers by helping them avoid the cost of LMI. This can save thousands and make buying more accessible.
For many buyers, a low deposit home loan may be their only option to buy property. This may be the case for first-home buyers, low-income earners, single parents, self-employed individuals or casual workers.
Regardless of the type of borrower you are, you need a clear picture of the costs and a strategy to minimise these over time. For example, you can use an offset account or redraw facility to reduce your interest payable, or you can increase your repayment frequency to fortnightly to pay off your mortgage faster.
Get in early but have a plan
Mansour Soltani, Money.com.au's Home Loans Expert
“A low deposit home loan can be a good way to get into the property market, but these loans are more expensive, so we recommend that you have an exit strategy. For example, if you’re using a lender who charges more fees/higher interest, use this avenue to get onto the property ladder but also make a plan to refinance to another lender once you have paid some of the loan down, the value of your property increases and/or your salary has increased.”
Mansour Soltani, Money.com.au's Home Loans Expert
Cons of low deposit home loans
Here are some of the main disadvantages of buying a home with a low deposit:
Higher upfront and ongoing costs
Often come with additional costs, the biggest being lender’s mortgage insurance. LMI can add thousands to your loan and, if added to your mortgage, will also accrue interest over the loan term.
Often attracts higher interest rates
Lenders typically see low deposit borrowers as higher risk. As a result, these loans may come with higher interest rates than the average home loan, increasing your monthly repayments and total loan cost.
Larger loan balance = more interest
With a smaller deposit, you’re borrowing a larger portion of the property’s value. This means higher repayments and more interest paid over the life of the loan, especially if rates rise or your loan term is long (i.e. 25+ years).
Fewer lenders, fewer options
Not all lenders offer low deposit home loans, and those who do may have stricter lending criteria. This can limit your options and reduce your bargaining power when it comes to interest rates and loan features, such as offset accounts.
How to apply for a low deposit home loan
Step 1. Check your eligibility
The eligibility criteria for low deposit home loans are often stricter than for standard home loans, as lenders consider them riskier. Firstly, make sure your credit file is squeaky clean with no defaults or missed payments (otherwise you may need to consider a bad credit home loan).
Lenders will look at your credit score, income and savings (including balances of savings accounts and term deposits) to assess your eligibility for a low deposit home loan. Some lenders may impose restrictions on the type of property you buy or certain postcodes.
Note: If you’d prefer some guidance, consider using a mortgage broker. They’re home loan experts who can support you through the entire application process and are usually well-informed about which lenders are open to low deposit borrowers.
Step 2. Gather your supporting documentation
Home buyers with a low deposit may be asked to provide more paperwork than those with a 20% deposit. Standard paperwork generally includes:
- Proof of income, including two payslips for the year to date or tax returns for the year to date if self-employed
- Details of your assets and liabilities
- 100 points of ID (e.g. driver’s license, passport)
Additional paperwork includes:
- Bank statements showing your deposit has been accrued over time and sitting in a bank account for at least three months OR
- A tenant ledger or rental reference letter signed by a real estate or property manager confirming you’ve always paid rent on time
Step 3. Complete the lender’s home loan application form
Fill out the lender’s home loan application form with all your relevant information and follow the instructions. You may be asked to upload your supporting paperwork at this stage or after the lender assesses your borrowing capacity.
You should notify your lender if you have a guarantor for your home loan or if you intend to use the First Home Guarantee (FHBG). Your lender will handle the paperwork on both counts.
Step 4. Get pre-approved with a low deposit
After an initial credit check, you may get pre-approval (or conditional approval), which confirms you qualify for a low deposit loan and for how much.
Once you’ve secured home loan pre-approval, do not make any changes to your financial situation or employment status. Your lender can still deny your application for formal approval if your circumstances have changed.
Step 5. The lender will conduct a credit check
The lender will conduct a complete credit check before processing your home loan application to the next stage. They will pay close attention to any outstanding debts, missed payments or defaults.
It’s best to get ahead of the curve with this one, so check your credit score and report before you apply for a home loan. You can do this for free using a credit reporting agency like Equifax.
Step 6. Get unconditional approval
You can get unconditional approval when you find a property to buy and the valuation is finalised. Your lender will issue a formal loan offer detailing the terms and conditions of the loan, including your rate. Review the loan offer and sign it if you accept the terms.
Tips to help get your application across the line
1
Tidy up your spending
Your lender will want to see a history of responsible spending, especially if you have a low deposit. Make sure to reign in as much of your discretionary spending as possible at least six months prior to applying for a home loan. Lenders will look at your bank statements to see where your money is going.
2
Pay off your debts
Debt affects your ability to make repayments and may imply that you’re spending more than you earn. Prove to your lender that you’re financially responsible by paying off some debts before you apply, particularly high-interest debt like credit cards, personal loans, or car loans.
3
Bump up your savings
Genuine savings is money you’ve earned and put aside yourself (e.g. in a high-interest savings account). It shows lenders that you can manage your finances and that you’ll be able to make the repayments. The more you save, the better your application will appear. It’s worth considering savings accounts with bonus interest if you’re a disciplined saver and can meet the bonus criteria.
4
Use government incentives and grants
Make use of government incentives like the Home Guarantee Scheme (HGS) or First Home Owner Grant (FHOG) to get you into your dream home with a smaller deposit and potentially save on LMI. Places may be limited, so check your eligibility before you apply (more on this below).
Low deposit home loans for first-time buyers
Low deposit home loans are especially popular among first home buyers as a way to crack the property market. For many buyers, it may be the only way to buy a home without help from the bank of mum and dad. Luckily, there are a number of options available to first home buyers who want to buy a home with a small deposit.
Home Guarantee Scheme (HGS)
The Home Guarantee Scheme (HGS) is a federal government initiative to help eligible home buyers purchase a home with a deposit of as little as 5% without paying LMI. Housing Australia guarantees the remaining 15%.
A re-elected Labor government has pledged to expand the scheme by increasing property price limits and removing caps on places and income. Starting January 2026, all first home buyers will be eligible to buy a home while tapping into the HGS.
The Home Guarantee Scheme is only available through participating lenders. There are a few different avenues available to home buyers through HGS programs, including:
- First Home Guarantee (FHBG): Supports eligible first home buyers to buy a home with a deposit starting from 5% with no LMI.
- Regional First Home Buyer Guarantee (RFHBG): Helps eligible first-home buyers to buy a home in a regional area with a deposit starting from 5% with no LMI.
- Family Home Guarantee (FHG): Supports eligible single parents and eligible single legal guardians of at least one dependent to buy a home with a deposit starting from 2% with no LMI.
Most states and territories also have the First Home Owner Grant (FHOG), which provides a one-off, tax-free payment to first home buyers to purchase a new home.
Some lenders may allow you to borrow up to 100% of a property's value with a guarantor home loan. Commonly referred to as a ‘no deposit home loan’, this type of product typically comes with strict conditions. One key requirement is that the guarantor must usually be an immediate adult family member. Put simply, the guarantor offers their own property as additional security for the loan – so if the borrower is unable to meet repayments, the guarantor may be held responsible for covering the debt.
