Compare low deposit home loans for March

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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Home loan comparisons on Mozo - last updated 19 March 2024

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Knowledge Hub

What is a low deposit home loan?

home loan deposit is a downpayment on your mortgage to establish security in your loan. In Australia, the standard home loan deposit size is 20% of the property's purchase value. 

This means that if you are buying a property for $500,000 you would need a deposit of $100,000.

But unless you have a cool fortune lying around, this can take awhile for most people to save. 

This is where low deposit home loans come in. Instead of paying 20% of the properties value, you only pay around 5% - 10%. Since the GFC, it's unfortunately not possible to get a no-deposit home loan

Low deposit home loans have some drawbacks, like higher interest rates, stricter lending criteria, and the added expense of lender's mortgage insurance(LMI).

However, they can still be a useful option to consider, especially for first home buyers

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Lenders mortgage insurance (LMI)

Will I have to pay lenders mortgage insurance?

Unless you have a family guarantor or first home owners grant, low-deposit home loans will require you to pay lenders mortgage insurance (LMI).

All home loans that have a loan-to-value ratio (LVR) above 80% are required to take out this insurance. The insurance cost is added to your home loan amount. LMI protects the lender financially if you default on your mortgage repayments

How much you need to pay for LMI will depend on the amount you are borrowing and your LVR. Just keep in mind that LMI isn’t transferable.

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

Government support for low deposit home loans

Using a low deposit home loan can be a helpful way of buying property. That being said, high interest rates and LMI can feel like added expenses.

However, if you are a first home buyer in Australia, you may be eligible for first home owner grants (FHOGs) or first home buyer schemes.

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

Keep in mind that the scheme is kept to participating lenders, so you be sure to check that your loan provider actually is a part of the scheme. 

Income limits apply and not everyone is eligible. You can learn more in the button below.

Government person offering support for low deposit home loans

Home loan hot tip

FHOG eligibility criteria has expanded in many states and territories. Now, any two eligible first home buyers can apply, including friends and siblings.

Pros of low deposit home loans

If you’re a borrower who’s looking to get into the property market now, whether an investor or first time home buyer, then there are plenty of advantages to getting a low deposit home loan.

  • Less time saving for a deposit. Low deposit home loans can make homeownership accessible to people who have not been able to save a deposit. This is 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 let borrowers get their home faster than they may otherwise have gotten had they saved for the full 20% deposit.
  • Hold more money back. With a lower initial deposit, you may be able to maintain a substantial emergency fund. If you add it to an offset account, this could significantly lower your interest.
  • Government schemes. If you’re a first time 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 (LMI).

Cons of low deposit home loans

While a low deposit home loan can be useful for borrowers who are 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 quickly, which is a problem if you run into trouble and need to sell. 
  • Higher Interest Rates: Since lenders see low deposit loans as risky, they generally give them higher interest rates than loans with large deposits (LVRs < 80%). 
  • Lender's Mortgage Insurance (LMI). If you have a deposit of less than 20% of the property's value, you will usually be required to pay Lender's Mortgage Insurance. This is a one-off fee that protects the lender, not the borrower, if you can't repay the loan.
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How can I calculate my mortgage repayments?

You can estimate your mortgage repayments with Mozo's free mortgage repayments calculator.

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

Otherwise, head straight to our comprehensive search tool and get a ranking of loans based on price, or compare options to find the best mortgage for you. 

What does the home loan application process look like?

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, etc.)
  • Proof of income
  • Liabilities (such as debts)
  • Credit score

It’s also a good idea to make sure that you 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. 

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Comparing low deposit loan interest rates

If you are planning to buy a home with a small deposit, then finding the right home loan is essential. Just because low deposit mortgages have higher interest rates, doesn't mean you can't find a good deal!

Our home loans interest rates page is a great place to find a competitive interest rate, it can also help you compare a range of loan features from offset accounts to extra repayments.

FAQs

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

Yes, there are plenty of lenders that allow borrowers to take out home loans with a deposit as low as 5% (so a 95% loan-to-value ratio).

A quick look in the Mozo database shows that low deposit borrowers will be able to pick and choose between a variety of big banks, credit unions, and online lenders, though the interest rates on offer vary greatly. 

What is LVR?

Loan-to-value ratio (LVR) is the size of your home loan divided by the property purchase price.

It shows lenders how much of the home loan covers the property purchase price. An 80% LVR means the loan covers 80% of the property's value. 

Having a high LVR is seen as risky by lenders because the borrower owns less of the property.

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, just with 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 standard fees, like application, property valuation, settlement, service, and discharge fees. You may also have to pay Lenders Mortgage Insurance (LMI). 

What are the downsides to low deposit home loans?

The main drawbacks of a low deposit home loan are the higher interest rates, stricter lending criteria (i.e. reduced borrowing power), and added cost of Lenders Mortgage Insurance (LMI). 

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JP Pelosi

RG146
Managing editor

Jean-Paul (JP) Pelosi is an experienced journalist and editor who has contributed to many of Australia's leading media outlets including The Guardian, News.com.au, Domain.com.au, Investment Magazine and ANZ's Bluenotes. He has also edited news and communications for large financial services companies such as CommBank, Suncorp, Allianz and Amex. He loves a well told story and applying his editorial experience to content that readers both care about and enjoy. JP heads up our writing team.

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Evlin DuBose

RG146
Senior Money Writer

Evlin is RG146 certified for general advice (Tier 2) and has become a leading voice in finance news since joining Mozo two years ago. She is regularly featured in Google's Top Stories alongside major publications like News.com.au and Yahoo Finance, and seasoned journalists. Despite being in the industry for just two years, she is Mozo's go-to writer for all things RBA and her research has been referenced by the Victorian Government. With a Bachelor of Communications degree from UTS, where she won the Dean's Merit Award and acted as the Director of Student Publications.

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