Low Deposit Home Loans

Low Deposit Home Loan FAQs

• What is a low deposit home loan and how can it benefit me?

  A low deposit home loan allows you to purchase a property with a smaller initial payment than is typically required. This can be beneficial if you're looking to buy a home but haven't saved up a large deposit. It helps you enter the property market sooner and start building equity in your home.

• What are the advantages of a low deposit home loan?

  Low deposit home loans are designed to help more people enter the housing market by lowering the initial financial barrier. They can be particularly advantageous for first-time home buyers or those who have not been able to save a substantial deposit.

  • Increased accessibility: Enables more individuals to purchase property sooner rather than later by reducing the amount of savings required upfront.
  • Market entry: Allows buyers to enter the property market at current prices, potentially capitalizing on market growth and increasing equity over time.
  • Flexibility in savings: Offers the possibility to invest or allocate savings to other needs or financial opportunities, rather than solely focusing on accumulating a large deposit.
  • Potential government incentives: Often eligible for various government programs that support low deposit borrowing, reducing additional costs like Lenders Mortgage Insurance (LMI).

• What are the disadvantages of a home loan with a low deposit?

  Home loans with low deposits can make purchasing a home more accessible, but they also come with certain trade-offs that borrowers should consider. These disadvantages include potential long-term financial impacts.

  • Higher overall costs: With a smaller initial deposit, you may end up borrowing more and thus paying more interest over the life of the loan.
  • Lenders Mortgage Insurance (LMI): Most low deposit loans require you to pay LMI, which protects the lender but can add a significant cost to your loan.
  • Increased monthly payments: Since you are financing a larger amount, your monthly repayments will generally be higher compared to those of a loan with a larger deposit.
  • Potential for negative equity: If property values decrease, you might find yourself owing more on your mortgage than your home is worth, especially if you've made a smaller deposit.
  • Stricter eligibility requirements: Lenders may impose stricter credit and income assessments to offset the risk of a lower deposit, potentially making it harder to qualify for the loan.

• Am I eligible for a low deposit home loan with Rapid Finance?

  Eligibility depends on several factors including your income, credit history, employment status, other assets you may have and the amount of deposit you have saved. We also consider Centrelink payments as income under certain conditions.

  It is advisable to complete the Free Financial Assessment, at the top of this page, to get started, and we can then review your finances, needs and goals to guide you through the next steps available to you.

  At Rapid Finance, we have over 20 years expertise working with people with all kinds of concerns from self-employment to bad credit histories to help them obtain home loans that work for them.

• What is the minimum deposit required for a low deposit home loan at Rapid Finance?

  At Rapid Finance, the minimum deposit required for a low deposit home loan typically starts from 5% of the purchase price of the property. However, this amount can vary depending on your individual circumstances, the specific loan product, and your eligibility under various criteria.

  To further assist with the purchase, you may be eligible for government schemes such as the First Home Guarantee, Regional Home Guarantee, or the Family Home Guarantee, which can allow you to purchase a home with an even lower deposit. These programs are designed to reduce the barrier to entry into the housing market, especially for first-time buyers and those in specific life situations, such as single parents. Under these schemes, the government essentially acts as a guarantor for a portion of the loan, potentially eliminating the need for Lenders Mortgage Insurance (LMI) and reducing the deposit requirement.

• Is it possible to get a mortgage with zero deposit?

  Generally, a deposit is required; however, if you have a guarantor, such as a family member who offers their property as additional security, you may be able to borrow up to 100% of the purchase price.

• What documents will I need to provide when applying for a low deposit home loan?

  When applying for a low deposit home loan at Rapid Finance, you will generally need to provide several key documents to support your application. These include:

  • Identification documents: Proof of identity, such as a driver's license, passport, or other government-issued ID.
  • Proof of income: Recent payslips, tax returns, and/or evidence of regular income such as bank statements showing salary deposits.
  • Bank statements: Detailed personal bank statements from the past 90 days to demonstrate your spending habits and financial commitments.
  • Additional financial commitments: Details of existing loans, credit card statements, and other financial obligations.

  Depending on your specific circumstances, additional documents may be required. For example, if you are self-employed, you might need to provide business financial statements and additional proof of income stability. Additionally, if you are applying under certain government schemes or programs, specific eligibility documentation might also be necessary.

• Could I get a low deposit home loan with a poor credit history or bad credit?

  Yes, it's possible. We specialise in helping people with poor credit scores find suitable finance options. We assess each situation individually and offer solutions to help improve your credit standing.

  To learn more about your options, see our home loans with bad credit page.

• Should I improve my credit score before applying for a home loan?

  While not strictly necessary, improving your credit score can increase your loan options and potentially lower your interest rates. We can help you understand what is required and help improve your credit score before submitting your applications to lenders.

• What is lenders mortgage insurance?

  Lenders Mortgage Insurance (LMI) is insurance that protects the lender in case you default on your loan. It is typically required for loans where the deposit is less than 20% of the property's value.

• Are there any other costs, besides the deposit?

  Yes, when purchasing a home with a low deposit home loan, there are several other costs you should be aware of besides the deposit. These include:

  • Lenders Mortgage Insurance (LMI): Typically required when your deposit is less than 20% of the purchase price, LMI protects the lender, not you, in case you default on the loan.
  • Stamp duty: This is a tax imposed by state and territory governments on property purchases. The amount varies depending on the property price and location, as well as your status as a first-time buyer (some concessions may apply).
  • Legal fees: You will need to pay for legal services to handle the transfer of property ownership.
  • Loan establishment fees: Some lenders charge an upfront fee for setting up your mortgage.
  • Building and pest inspections: It’s wise to conduct these inspections before purchasing a property to avoid costly repairs later.
  • Valuation fees: Your lender may require a formal valuation of the property to determine its market value.
  • Ongoing costs: Once you own the home, there will be ongoing costs such as council rates, body corporate fees (for apartments), and home and contents insurance.

  Understanding these costs can help you budget more effectively and avoid surprises during the home-buying process.

• Could I use the first home owner grant (FHOG) towards my deposit?

  Yes, the First Home Owner Grant (FHOG) can indeed be used as part of your deposit, which is particularly advantageous for first-time homebuyers struggling to save for a large deposit. The availability and amount of the FHOG can vary depending on the state or territory in which you are buying your home, as well as the value of the home. The grant typically applies to new homes, including those built by the owner or by a builder. To qualify, you'll need to meet specific criteria, such as residency requirements and limits on the value of the home. It's advisable to check the specific requirements and conditions in your state or territory to understand how you can best utilise the grant to facilitate your home purchase.

  Learn more about the FHOG via our first home buyer page.

• What is the First Home Guarantee?

  The First Home Guarantee, formerly known as the First Home Loan Deposit Scheme, is an initiative by the Australian Government designed to help first-time homebuyers enter the housing market sooner. Under this scheme, eligible first-time buyers can purchase a home with a deposit as low as 5% without the need to pay Lenders Mortgage Insurance (LMI). The government acts as a guarantor for up to 15% of the purchase price, thus eliminating the cost of LMI. Each financial year, a limited number of places are available, and eligibility criteria, including income caps and property price thresholds, apply.

• What is the Regional Home Guarantee?

  The Regional Home Guarantee is a government initiative aimed at encouraging Australians to build or buy new homes in regional areas. Similar to the First Home Guarantee, this program supports eligible buyers by allowing them to purchase with a smaller deposit while avoiding LMI costs. The guarantee can be applied to new constructions or newly built homes, and participants only need a minimum deposit of 5%. This program is not limited to first-time homebuyers, which makes it unique. It targets those moving to regional areas, as well as other demographics, including divorcees.

• What is the Family Guarantee?

  The Family Guarantee, specifically known as the "Family Home Guarantee," is an Australian Government initiative designed to assist single parents with dependants in purchasing a home. Under this scheme, eligible single parents can buy a home with a deposit of as little as 2%, while the government guarantees up to 18% of the purchase price. This reduces the borrower's Loan to Value Ratio (LVR) to below the usual 20% threshold that typically requires Lenders Mortgage Insurance (LMI), thereby avoiding this additional cost. The aim is to support single parents in entering or re-entering the housing market despite having limited savings. It’s important to note that this scheme is not a traditional guarantor loan where a family member offers their property as security. Instead, it’s a form of governmental support where the guarantee is provided to the lender. Eligibility criteria include meeting certain income and property price caps, and the applicant must be a single parent, regardless of whether they are a first-time homebuyer or not.

• What are rent-to-own homes?

  Rent to own homes offer an alternative pathway to homeownership for individuals who may not currently qualify for a traditional mortgage or who need time to save for a larger deposit. In a rent-to-own agreement, you agree to rent a property for a specified period, during which a portion of your monthly rent payments accrues and eventually contributes towards a down payment for purchasing the home. These agreements typically include an option fee, which you pay upfront, and this fee (often a percentage of the purchase price) secures your right to buy the property at a later date, usually at a pre-agreed price. This arrangement can be beneficial for building savings and credit simultaneously while living in the home you plan to buy. However, it's important to thoroughly understand the terms of your specific contract, including the obligations and rights it entails for both the buyer and the seller.