Buying a home with no deposit

Have you just graduated from university, started your climb up the corporate ladder and itching to take your first step into the property market? Or maybe you’ve just divorced and prefer buying a place over the prospect of renting. Then these could be home loan options for you.

100% home loans
In theory these sound like a dream, but it’s probably a safe bet to approach no deposit home loans with some caution. But they are a good alternative for people who have no assets but do have a solid income, and for whatever set of circumstances haven’t saved the full 5-20% home loan deposit most lenders require.

To qualify for a no deposit home loan, you need around 3% of the loan amount in the bank to prove you have a savings history of at least six months, and that you did not receive this amount as a gift. This 3% is generally required on top of the loan to pay for stamp duty and conveyancing. No deposit home loan conditions are generally more stringent than a standard home loan, so you need to show a good credit history and that you are capable of servicing the debt with a current income of around $50,000.

No deposit home loans have attracted higher interest and fees, which can often be 2% higher than the average mortgage rate. But greater competition between lenders means some rates are as low as the standard variable rate, so it really is a matter of getting in there and doing your product research to find the best offer that’s going.

At the end of the day, you are still borrowing more money so you will be paying more interest over the life of the loan. And you will also need to pay mortgage insurance upfront. But no deposit home loans do get you into the market a lot faster and the lender may offer additional cost-saving features as part of the loan.

Shared equity loans
Referred to as an equity finance mortgage or EFM, these loans have recently emerged in the market and are only offered by a small number of lenders.
They’re designed for home buyers who want to live in a nicer home or in a more expensive suburb, but who don’t want to sacrifice their current lifestyle to supplement higher mortgage repayments.

It works like this; the lender invests in your home by contributing up to 20-25% of the home’s cost which is offered to you interest free. On the plus side you do save on your monthly repayments by paying no interest or principal payments on that 20-25% for the life of the loan. But on the down side, the lender can take as much as a 40% share in any capital gains you make when it comes time to sell the home. You also need a minimum 5% loan deposit to be eligible for an EFM.

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