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Can I get a home loan without a deposit?

By JP Pelosi ·
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Getting a home loan approved without a deposit isn’t common in Australia, unless you have a guarantor. A guarantor is usually a family member who offers equity in their own property as additional security for your new home loan.

Without equity on the borrower’s end, lending such a large amount of money is very risky for a lender. 

So let’s take a look at the options for a buyer who doesn’t quite have the typical 20% first deposit.

Getting a home loan guarantor

It’s usually better to ask a close relative to be a guarantor, as this assures the lender that if you can no longer keep up your home loan repayments, they can count on your guarantor to cover it.

For example, a parent who owns a home could use $100,000 from their built-in equity as your home loan deposit instead of you needing to save that amount. Similarly, if you had $50,000 saved up but fell short of the typical 20% deposit required for a first deposit, your guarantor could effectively ‘guarantee’ the extra money. 

Of course, an alternative option is for your parents to simply help you with the deposit. For example, you could aim to save 5% yourself and then your parents could help with the remaining 15% for a 20% deposit in total. 

These scenarios are certainly more common than having no deposit at all. While some lenders may consider a 'no deposit' or 'zero deposit' home loan, it would be done on a case-by-case basis. 

Buying a home with a smaller first deposit

Some mortgage lenders will allow first home buyers to borrow up to 95% of the value of a property, meaning you only need a 5% deposit.

These are called low deposit home loans because you’d be borrowing with a deposit under the recommended 20%.

Consider if your property was $600,000 as an example: instead of needing to save up $120,000 for a 20% deposit, you would only need $30,000 for a 5% deposit.

Of course, while that looks like an easier prospect, you also need to keep in mind that your monthly repayments would be much higher because the amount borrowed would be larger. 

A quick look at the maths:

A 20% deposit on a $600,000 property = $120,000.

This means a $480,000 home loan would be required. 

So, on a 25-year home loan at 6% p.a. interest, monthly repayments come to $3,039 and the total interest payable is $447,794.

This is a fairly standard approach, so let's see what happens when you reduce your deposit.

A quick look at the maths with a smaller deposit:

A 5% deposit on the same property of $600,000 = $30,000.

This deposit would then require a home loan of $570,000. 

For the sake of argument, let’s use the same rate of interest of 6% over the same home loan term:

So on a 25-year home loan at 6% p.a. interest, monthly repayments come to $3,673 and the total interest payable is $531,755. This is quite a bit more to fork out over the course of a home loan.

Keep in mind that a bigger deposit can also help you secure a lower interest rate in most cases. This is a very important consideration. With just a 5% deposit, you may only have access to a home loan with a higher interest rate.

There are a few other things to consider when it comes to low deposit home loans, including lenders mortgage insurance and higher loan-to-value rates. Read more about these considerations in our guide about buying with differently sized first deposits.

First home buyer grants can help

Aside from support from parents or family members, another option for Australian home buyers is to make the most of government initiatives such as the First Home Loan Deposit Scheme or the Family Home Guarantee.

You can learn more about these schemes and others on our home buyer grants hub page. 

The bottom line: Weighing up going guarantor

To go with a guarantor you need a close relative with a proven track record in homeownership - and a solid amount of equity in their home. For example, guarantors are usually family members and can include parents, grandparents and siblings. In some cases, lenders will allow extended family members and even ex-spouses to be a guarantor to a loan.

The duration of the guarantor on the loan will also vary. They can stay on your mortgage until your loan is refinanced, paid off or until a special arrangement with the lender comes into effect. Typically the guarantor can’t be ‘released’ until you have enough equity built up in your own loan. That means at least 10% or 20% to avoid paying Lenders Mortgage Insurance, though this may vary between lenders and their products. 

Keep in mind that being a guarantor isn’t for everyone as it can place some pressure on the relationship. The financial well-being of both parties needs to be weighed up ahead of time to ensure this approach suits all involved. 

If you’re ready to research home loans, start by comparing some of the many options in the Mozo database below.

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Last updated 18 September 2024 Important disclosures and comparison rate warning*

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JP Pelosi
JP Pelosi
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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.

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