No-deposit home loans

A no-deposit home loan allows you to buy a property with no deposit upfront, although you’ll generally need a guarantor (some willing to provide their equity to secure the loan) or equity of your own (the value in your home minus your outstanding mortgage balance). With a guarantor home loan, some lenders may allow you to borrow up to 100% of the property's value.

Without a guarantor or equity, most lenders require at least a 5% deposit – or put another way, a loan-to-value ratio (LVR) of at least 95%. You may have to pay lender’s mortgage insurance (LMI) to mitigate the lender's risk if your deposit is less than 20%, unless you apply through a government support scheme like the Home Guarantee Scheme (HGS).

A guarantor home loan is generally the common type of no-deposit home loan in Australia. It works like a standard home loan — but it’s secured in part by the guarantor’s home equity instead of solely your property and cash deposit.

A guarantor is typically a parent or immediate family member who owns their own home and has a high level of equity, because they have paid off a large chunk of their mortgage, their property has increased in value, or both. This is sometimes referred to as a family security guarantee or family pledge home loan.

Some lenders will allow you to borrow up to 100% of the property's value with a guarantor. You may also be able to add other costs like stamp duty onto the loan, effectively meaning you are borrowing more than 100%.

However, it’s usually the case that the guarantor will only cover a portion of your loan amount, usually enough to reduce your LVR to 80% so you can avoid LMI.

Your guarantor isn’t required to contribute any money towards the home loan, but will be partially responsible for the debt in the event of a default. You, as the borrower, are contracted to make repayments as scheduled. Your property could be sold to recoup the lender’s costs if you default.

Please note: Throughout this page, we offer hypothetical examples that closely resemble plausible scenarios for home buyers.

No-deposit guarantor home loan case study

Mitch and Lucy have their sights set on a $600,000 property. They have some savings but none available for a home deposit. For a $600,000 property, they would need a 20% deposit of $120,000 to avoid LMI.

Lucy’s parents own a home valued at $900,000, so they offer $120,000 of their equity as security for the loan. Mitch and Lucy have a high enough combined income to afford the loan repayments and good credit, so they’re granted a home loan without a deposit or needing to pay for LMI.

Lucy’s parents will be released from the guarantorship once her property has accumulated enough equity to achieve an LVR of less than 80%.

You may be able to get a home loan with no deposit if you have an existing property with enough equity. Equity is the difference between your property’s value and how much you owe on it.

You can use your existing equity as a deposit by refinancing your current mortgage. Some lenders may even offer you a cashback rebate if you switch to them when you refinance. The lender will first conduct a property appraisal to determine exactly how much usable equity you have. You need at least 20% equity in your home to refinance and avoid paying LMI on a new loan.

No-deposit home loan using equity case study

James owns a property valued at $800,000 and has a remaining home loan balance of $600,000. He decides to refinance his home loan to access the available equity in his property, hoping to use it as a deposit for a new home.

James asks his current lender to assess the available equity in his property. They work out he can use $140,000 in equity as a 20% deposit on a new $700,000 home he’s been eyeing off.

James gets approved for a $560,000 home loan after putting down his 20% equity as a deposit. He avoids LMI in the process.

The Home Guarantee Scheme (HGS) is an Australian government initiative that supports eligible home buyers to get into the property market with a deposit as little as 2-5%. Housing Australia guarantees the rest to avoid you needing to pay for LMI.

There are a few different programs available to home buyers through the HGS, including:

• First Home Guarantee (FHBG): For eligible first-home buyers to buy a home with a deposit starting from 5% with no LMI.
• Regional First Home Buyer Guarantee (RFHBG): For 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): For eligible single parents or 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 a First Home Owner Grant (FHOG) program, which provides a one-off, tax-free grant to eligible first-home buyers to purchase a new home.

Under the FHSS scheme, first-home buyers can withdraw up to $50,000 of voluntary super contributions for a home deposit. A single person can make super contributions of up to $15,000 per financial year at a tax rate of 15% instead of their marginal income tax rate. The FHSS applies to voluntary superannuation contributions only, not to mandatory super guarantee (SG) employer payments.

You generally have to apply for and receive a FHSS determination from the Australian Taxation Office (ATO) before you sign a contract for your first home or apply for release with your super fund. Once you withdraw your deposit, you typically have 12 months to sign a contract of purchase or build a home or may have to recontribute your deposit to your super fund.

Colloquially known as the ‘bank of mum and dad’, a loan or gift from parents or family can go towards a deposit for your home. Lenders are likely to ask for evidence of where the money came from and may require a gift letter signed by your benefactor(s) stating the funds were given to you as a gift with no strings attached.

While most lenders will accept monetary gifts towards a deposit, they will still want to see a history of genuine savings and proof that you can repay a home loan. They will generally ask for three to six months of bank statements and proof of a good rental history.