Home Loan with Low Deposit: What First Home Buyers Need to Know

Buying your first home is a major milestone, but saving for a large deposit can make it feel out of reach. The good news is that a home loan with low deposit can help first home buyers in Australia get into the property market sooner. Here’s what you need to know about securing a home loan with low deposit, the options available, and important tips to make your journey smoother.

What is a Home Loan with Low Deposit?

A home loan with low deposit is a mortgage that allows you to buy a property with a deposit smaller than the traditional 20% of the purchase price. In Australia, some lenders and government schemes let you secure a home loan with low deposit—sometimes as little as 2–5% of the property’s value. This means you don’t have to spend years saving up a large sum before you can buy your first home.

How Much Deposit Do You Need?

• Most lenders require a deposit of at least 5% for a home loan with low deposit.

• Some special schemes, such as those for single parents or graduates, may allow deposits as low as 2%.

• The exact amount you need will depend on the lender, your financial situation, and the type of property you want to buy.

Government Schemes That Can Help

Australia offers several government schemes to support first home buyers looking for a home loan with low deposit:

• First Home Guarantee (FHBG): Lets eligible buyers purchase a home with a deposit as low as 5%, without paying Lenders Mortgage Insurance (LMI). The government acts as a guarantor for up to 15% of the property’s value.

• Family Home Guarantee: Designed for single parents, this scheme allows you to buy with a deposit as low as 2%.

• Regional First Home Buyer Guarantee: For those buying in regional areas, this also allows a 5% deposit.

• First Home Owner Grant (FHOG): A one-off payment for eligible buyers of new homes, which can be used towards your deposit.

These schemes can make a home loan with low deposit more accessible and affordable for first home buyers.

Lenders Mortgage Insurance (LMI) and Low Deposit Loans

If you take out a home loan with low deposit (less than 20%), most lenders will require you to pay Lenders Mortgage Insurance (LMI). LMI protects the lender if you can’t repay your loan, but it’s a significant extra cost for buyers. However, some government schemes like the First Home Guarantee help you avoid LMI, saving you thousands of dollars.

Who Can Apply for a Home Loan with Low Deposit?

To qualify for a home loan with low deposit, you’ll generally need to meet these criteria:

• Be a first home buyer or not have owned a property in the past 10 years.

• Have a stable income and a good credit history.

• Show evidence of genuine savings, usually money you’ve saved over at least three months.

• Some lenders accept gifted deposits from family, but this may be viewed more cautiously than savings you’ve built up yourself.

Tips for First Home Buyers

• Check Your Eligibility: Review the requirements for government schemes and lender policies to see if you qualify for a home loan with low deposit.

• Budget for All Costs: Besides your deposit, you’ll need money for stamp duty, legal fees, inspections, and moving costs.

• Get Pre-Approval: Pre-approval from a lender can show sellers you’re serious and help you set a realistic budget.

• Compare Lenders: Not all lenders offer a home loan with low deposit, and interest rates and fees can vary. Use a mortgage broker to help you find the best deal.

• Understand Repayments: Borrowing more with a smaller deposit means higher repayments. Make sure you can comfortably afford them, even if interest rates rise.

• Consider Using Grants: If you’re eligible for the First Home Owner Grant or other incentives, use them to boost your deposit or cover other costs.

Pros and Cons of a Home Loan with Low Deposit

Final Thoughts

A home loan with low deposit can open the door to home ownership for first home buyers who are struggling to save a large deposit. With the right planning, understanding of government schemes, and support from a mortgage broker, you can make your dream of owning a home a reality sooner. Always do your research, compare your options, and seek advice to ensure you choose the best home loan with low deposit for your needs.

If you’re ready to take the next step, Loans and Mortgage can help you navigate your options and find a home loan with low deposit that suits your situation. Reach out to our team for personalised advice and start your home buying journey today.

Loans and Mortgages are the best Mortgage broker firm in Australia specializing in approaching financial services. We offer our services in Hobart, Launceston, Burnie, Devonport, George Town, Penguin, Smithton and near by areas of Tasmania. Our services are also extended all over Australia. For more details call us on 0403 803 470.