Typical mortgages require a 20% deposit to avoid lender’s mortgage insurance, but saving that amount can take people many years, especially in markets with soaring property prices that make reaching that goal seem unattainable. However, there is good news for those eager to make their dreams of home ownership a reality – low deposit home loans.
These lending solutions are designed to make home ownership more accessible by lowering the upfront costs, bridging the gap between your current savings and the large down payment typically expected. Here, you’ll find all of the information you need on low deposit home loans, including the benefits, limitations, eligibility criteria and more.
At Simplifi Lending, our team of experienced mortgage brokers is dedicated to helping you secure a good deal on a low deposit home loan. We also understand that navigating the the complex landscape of home financing can be daunting, which is why we take the time to understand your unique circumstances and call on our extensive network of lenders to curate a range of tailored low deposit home loans catered to your specific needs.
Low deposit home loans offer a range of features and benefits that can make the path to your home ownership journey feel much more achievable. These include:
The most obvious advantage of a low deposit home loan is the reduced initial financial outlay required. Instead of saving for years to accumulate a substantial deposit of at least 20%, you can secure a mortgage with a deposit as low as 5% (maybe even lower in some cases).
With a smaller deposit required, low deposit home loans enable you to purchase a property and purchase a home sooner than you might have been able to with a standard mortgage. This is particularly beneficial in areas where houses have a higher property purchase price, where waiting to save for a larger deposit could mean missing out on opportunities in your desired location.
By minimising the upfront capital required, low deposit home loans leave you with more liquidity to cover other expenses associated with homeownership such as moving costs, renovations and furnishings. This financial flexibility can be invaluable for first home buyers or those on a tight budget.
Even with a smaller deposit, you’ll start building equity in your property as soon as you make your first mortgage payment. Plus, as you continue to make payments and the property appreciates over time, your equity stake in the property will grow, providing you with a valuable long-term investment.
Despite the fact that low deposit home loans offer an attractive pathway to homeownership, it’s also important to be aware of the limitations and drawbacks. These include:
With a smaller down payment, lenders may require you to take out Lenders Mortgage Insurance (LMI), which can add thousands to the upfront costs. For many borrowers, LMI is a viable option to get you into the market, despite this cost. There are, however, LMI waivers in place for certain professions and qualifying groups, so it’s worth checking with a mortgage broker to see if you qualify for these.
To mitigate the perceived risk associated with low deposit home loans, lenders often impose stricter lending criteria, such as higher income requirements, excellent credit scores, and stricter debt-to-income ratios. In turn, this can make it more challenging for some borrowers to qualify.
Some lenders may view low deposit home loans as riskier investments, leading them to charge a higher interest rate than a traditional mortgage with a deposit. As a result, the interest rate can result in higher monthly repayments and greater interest paid over the life of the loan.
Even though you start building equity sooner with a low deposit home loan, with a smaller deposit, you start with less equity in your property, which can be a concern if the property value declines. In extreme cases, homeowners may find themselves in a negative equity position, owing more on their mortgage than their home is worth, making it difficult to refinance or sell without incurring a loss.
At Simplifi Lending, our experienced mortgage brokers understand the complexities of low deposit home loans, and we’re committed to guiding you through the process with expertise. Whether you need competitive rates, flexible terms, or guidance on meeting lending criteria, we’ll work hard on your behalf to find you a deal that meets your needs.
We’ll also guide you through the things you need to consider when it comes to low deposit home loans, including:
In order to apply for a low deposit home loan, you’ll need to meet certain criteria and provide the necessary documentation. This may include:
You’ll need to provide government-issued identification documents when applying for a low deposit home loan, including a valid driver’s license or passport.
Along with your ID, you’ll need to present evidence of your income to demonstrate your ability to repay the loan. This may include recent payslips that show your year-to-date earnings, as well as tax returns for the past few years if you’re self-employed. You should also prepare copies of your bank statements that show regular deposits from your employer into your account.
On the subject of employers, you’ll need to provide proof that you have a stable job and provide your employer’s name, address, and contact information. You may also be asked about your length of time in that employment and other details, like whether your role is permanent or temporary.
Your chosen lender will likely conduct a review of your credit history, but it’s also worth requesting a copy from a reputable credit reporting agency that you can present if needed. Check this for any errors or discrepancies that could negatively impact your credit score, and take steps to address these before applying for the loan.
While low deposit loans require minimal upfront savings, you may also be asked to provide details about any savings or assets you plan to use for the deposit. This could include savings in a bank account, equity from another property, or a gifted deposit from a family member.
When you work with the team of mortgage brokers at Simplifi Lending, you’ll be unlocking expert advice on your personal financial situation, along with access to over 40 top lenders. But that’s not all! We’ll also:
Our service doesn’t end there, though. Once you’ve received your loan and are settled into your new home, we’ll continue to support you by:
We have experience helping people who have deposits as low as 5%-10%, because we work with a wide range of lenders, we can often help people who have lower deposits.
Get started on your low deposit home loan journey today by contacting us and speaking with an expert mortgage broker. Your no-obligation Preliminary Assessment is 100% free of charge, and you’ll see exactly how we’re able to help bring your dreams of homeownership to life!
The exact amount you need as a deposit varies depending on the lender and the specific loan product, but generally, low deposit home loans require a deposit of around 5% to 10% of the property’s purchase price.
You are likely to need to pay Lenders Mortgage Insurance on a low deposit loan, but there are certain ways to avoid it. For example, if you work in a certain profession or are eligible for certain government incentives and schemes, you may be eligible for an LMI waiver.
This depends on the lender, as some may offer low deposit loans for investment properties, but the eligibility criteria and loan terms often differ from those for owner occupiers.
To improve your overall chances of getting approved for a low deposit loan, save as much as possible while reducing your existing debts and building a strong credit history.
It’s definitely a good idea to seek the advice of a mortgage broker when looking at low deposit home loans, as they will be able to help you navigate the complexities of the home buying process and make more informed decisions about your loan options.
