Are No Deposit Home Loans Still Available?
No deposit home loans were available before the Global Financial Crisis – ie. pre 2008. In thiose days it was possible for borrowers with a strong income and impecable credit history to borrow up to 110% of the property purchase price. Lenders were happy to offer such loans because firstly money was flowing freely and lent easily. Secondly property prices were going up and up so they were comfortable that within a couple of years of the property purchase the borrower would have ample equity in their home.
However since the Global Financial Crisis, Australian banks and other lenders have discontinued 100% home loans as they are perceived to be high risk products. Today even borrowers on $300,000 p.a. and with a super clean credit history need a deposit in order to qualify for a home loan.
How Much Deposit Does a Home Buyer Need?
So how much deposit is actually required? Clean credit borrowers looking to make a purchase in a metropolitan postcode are able to borrow up to 95% of the value of their purchase. This means that they need to have a deposit sufficient to cover 5% of the property value and purchasing costs such as stamp duty, legals etc.
Borrowers who are self employed, have limited financials but a clean credit history may qualify for a maximum of 80% of the property value in most cases. This means they need a deposit of 20% plus funds towards purchasing costs.
The same generally applied to borrowers with some history of bad credit – ie. a deposit of at least 20% plus costs is needed.
To qualify for a home loan bad credit borrowers need to be discharged from bankruptcy/part 9 debt agreement and pay out all unpaid defaults (in addition to the deposit requirement).
For example a low doc borrower or a bad credit borrower looking to buy a home in Victoria for $400,000 – needs close to $100,000 deposit (between the 20% and stamp duty on purchase). Of course if they are a First home Buyer, the grant can be applied towards this deposit. However $7,000 does not make much difference if $97,000 is needed.
Many borrowers are quite disappointed when they realize that they need a significant deposit to qualify for a home loan.
What can you do if you have no deposit?
Borrowers who wish to purchase not but do not have the required deposit can use one of the following strategies:
– Borrow the deposit funds through family or friends;
– Buy together with a parent and have them contribute the deposit for you;
– Ask a family member to offer the security of their home towards the deposit requirements. Many parent elect to do this for their children in order to assist them with a property purchase.
– If you yourself have another property with equity, you can offer it as additional security to the lender in order to borrow 100% of purchase price.
– Buy a house and land from a builder willing to fund you a deposit and arrange finance for you with only $3,000 deposit.
– Purchase with another friend or two and combine your deposits.
Why have no deposit loans been discontinued?
In the post GFC economic climate the Australian government is averse to contributing to a property value bubble. Australian property values have come down quite a bit and homes are now significantly more affordable than they were even 5 years ago. It is the fact that borrowing for a home is difficult and requires a deposit, that is one of the factors which is keeping Australian property prices in check – and this is unlikely to change in the foreseeable future.