With no deposit home loans, you can purchase a home and pay nothing upfront. But are these loans available and what are the requirements? That’s what Monzi’s here to investigate. Read on and we’ll explain all you need to know. Find out if these home loans are an option for you.
Please note, certain ideas and products presented in this article may not be offered by Monzi nor the lenders we work with. This article presents only general information. Consider seeking professional financial, taxation, legal or other advice to check how the information and ideas presented on this website relate to your unique circumstances.
No deposit home loans explained
No deposit home loans are exactly what you’d exactly. Whereas with typical mortgages you must pay 20% upfront as a home loan deposit, with no deposit loans you don’t have to pay a cent. In other words, you’ll be borrowing the full value of the property. However, you will need to find a guarantor to provide the security on your loan.
Beyond this, a no deposit home loan will be no different from a standard mortgage. You’ll make repayments monthly with interest and fees added on until you’ve repaid your principal loan amount. Typically, this will cover a period of 15 to 40 years. As a result, it’s by far the most significant financial commitment that you will make in your lifetime.
While that covers the basic definition, there is much more to know. Read on as Monzi breaks down the availability of these loans as well as all the key details. Let’s go.
Are no deposit home loans available?
Yes, they may be. However, lenders only offer them on an extremely limited basis and this comes with a significant condition.
In short, the only way that you may get a no deposit home loan is if you have a guarantor. The guarantor will use their home equity as security to guarantee your loan. Without this, you will not be offered a home loan if you cannot pay a deposit. In other words, a guarantor loan may simply be your only option.
While in the past it was possible to purchase a home and pay no deposit, these days, restrictions have tightened. While some lenders may offer no deposit home loans if you have a guarantor, in most cases, you must pay a deposit of at least 5%.
Why aren’t no deposit home loans offered anymore?
Unfortunately, as we mentioned, lenders no longer offer true no deposit home loans. While in the past borrowers were able to purchase a new home and pay nothing upfront, sweeping changes were implemented following the Global Financial Crisis.
Lenders began to tighten restrictions to make mortgages less accessible to protect themselves. While Australia avoided much of the damage, the housing crash in the USA as a result of subprime home loans was enough to spur change. As a result, lenders introduced deposit requirements along with a host of other changes.
Ultimately, this resulted in guarantor home loans being the only option if you’re after a no deposit home loan. In addition to this, there were ramifications for personal loan applications too.
What are the requirements to be a guarantor?
To be a guarantor, you must be a homeowner with at least 20% equity. This is because, as a guarantor, your home equity will be used as security on the borrower’s mortgage. This is to account for the lack of deposit paid.
However, keep in mind that if that the borrower misses their repayments, you may be asked to make repayments or cover additional costs. As a result, you should not agree to be a guarantor unless you have considered the risks and sought professional advice.
Finally, once the borrower reaches 20% equity in their home, you may be able to apply to the lender to release you as a guarantor.
Who can act as a guarantor on my loan?
Not everyone can act as a guarantor on your loan. Typically, it will be limited to immediate family members (e.g. parents, grandparents or siblings) or your spouse. However, this may vary between lenders.
In any case, this means that a friend, business associate or anyone that you are not closely related to cannot act as the guarantor on your loan. Keep this in mind when you are trying to find someone willing to act as the guarantor of your loan.
What happens if I default on my no deposit home loan?
Ultimately, if you default on your home loan, then your guarantor may be liable for the portion of the loan that they have guaranteed. For instance, if they have guaranteed 20%, then they may need to cover these costs.
As a result, while a guarantor loan can be an option to help you get into the housing market early, they can be a risky option. With this, ensure that you discuss with your guarantor the potential pitfalls and only apply for a home loan if you are sure that you can meet the repayments for a long period.
Am I eligible and will I be approved for a no deposit home loan?
In short, Monzi cannot say whether or not your application will be approved. This is simply because it will depend on your financial situation as well as the lender that you are dealing with.
Having said this, to be eligible, lenders will typically be looking at a few key points.
Firstly, you must have a good credit history. If a lender is allowing you to borrow hundreds of thousands of dollars, then they want to be sure that you are trustworthy. As a result, you may need to meet a minimum credit score requirement.
In addition to this, you must have steady employment and be earning a regular income. Moreover, in most cases, to be offered a no deposit loan, lenders will require you to have at least 5% of the property value saved, even if this is not paid as a deposit.
Finally, there may be other criteria related to your current expenses, savings, assets or outstanding debts that could affect your eligibility.
What are the benefits of no deposit home loans?
The key benefit of a no deposit home loan is that you can enter the property market now. There’s no need to wait until you’ve saved up a deposit, you can purchase and move into your new house potentially years earlier than you otherwise would have.
This comes with the additional benefit that you may be able to take advantage of favourable changes in interest rates or the housing market that may occur in the immediate future.
Beyond this, other benefits are similar to those you will experience with a standard home loan. You may be able to make use of additional features such as offset accounts or redraw facilities and your repayments will be divided into a series of manageable amounts over a fixed period.
What are the drawbacks?
The first and most obvious drawback is that you must find a guarantor. Without this, you will not be approved for a no deposit home loan. As a result, you will need to approach an eligible individual and have them agree to be the guarantor on your loan.
In addition to this, there are other downsides worth considering too.
Firstly, by borrowing the full value of your property, your loan amount will be larger. As a result, you will pay more interest and will likely need to select a longer repayment term (e.g. 30-40 years). This can increase your costs considerably in the long run.
In addition to this, given the additional risk of offering loans with no deposit, lenders may charge higher rates or additional fees. So, make sure that you are wary of this before applying.
What’s the difference between low deposit and no deposit home loans?
In short, the difference is straightforward.
On the one hand, with no deposit home loans, you’ll pay nothing upfront. As a result, you’ll be borrowing an amount equal to the full value of your home.
On the other hand, with a low deposit mortgages, your deposit will typically be equal to between 5% and 20% of the value of the property and this must be paid upfront.
While both may be options, note that low deposit home loans may not require a guarantor. Instead, you may be able to apply with the First Home Loan Deposit Scheme or pay premiums on Lender’s Mortgage Insurance. These options are not available with no deposit home loans.
Can I get a no deposit fixed rate loan?
However, availability may vary depending on your loan and lender.
In short, with a fixed-rate mortgage, your repayments and interest rate are locked in. As a result, you’ll know exactly what you have to pay. This makes budgeting easy and protects against unfavourable interest rate movements.
With this, they are often a handy option for new borrowers as they offer a smooth transition into making repayments. However, note that typically a fixed rate will only remain in place for a short period (e.g. two to five years) before reverting a variable structure. Moreover, you may need to pay a premium for this feature.
What about a variable rate?
If you are approved for a no deposit home loan, then it will almost certainly be a variable rate loan. After all, these loans are the most common mortgage.
As it is variable, your interest rate will fluctuate on a monthly, annual or quarterly basis. With this, movements may be favourable or unfavourable. However, changes can be difficult to predict.
In any case, variable rate loans are often praised for their flexibility. You can access a range of additional features (e.g. offset accounts) and may have the option to make extra repayments too. However, consult with your lender to determine what is available to you.
Is it possible to combine fixed and variable rates?
Yes, with split rate home loans you can combine a fixed and variable rate in one loan. Best of all, you’ll typically get to decide how it’s divided (e.g. 50/50).
While you will still only make one repayment, part of it will go to paying the principal and interest on a fixed rate while the remaining portion will be a principal and interest payment on a variable rate.
In short, it’s about combining the benefits. You get the security and certainty of a fixed rate while also still getting the flexibility of a variable rate (e.g. option to make extra payments). However, note that a split facility will only remain in place for a short period (e.g. one to five years) before reverting to a standard variable structure.
In any case, if you are applying for a no deposit home loan, then check with your lender to determine if this option is available.
Can I get a no deposit home loan online?
Banks are no longer the only source of home loans. There are now a range of specialist lenders who offer home loans online. As a result, they could be a more quick and convenient option for you.
Not only that, as they are online-based, they have lower overheads (e.g. costs of running a branch). As a result, they can potentially offer you a better deal (i.e. lower costs on your loan).
Having said this, do your research to determine which bank or lender is right for you. Compare rates, terms and features to find a home loan that suits your budget.
Finally, remember that lenders may not offer no deposit home loans. As a result, you may be required to pay a deposit of between 5% and 20%.
What information will I need to provide when I apply?
When you apply for a home loan, you will need to supply more documents than any other loan (e.g. car loan or cash loans found online). After all, lenders are extremely thorough and will investigate your finances completely to ensure that you can afford the loan.
As a result, you will need to supply documents from three categories: assets and liabilities, budget (i.e. income and expenses) and identification.
Starting with identification, you must provide 100 points of ID to verify your identity. This may include your birth certificate, licence or other such documents.
Next, you must provide proof of employment and income (e.g. payslips). In addition to this, you must provide copies of your bank statements (typically three months worth) and an estimate of your current expenses. Lenders use this information to get an idea of your spending habits and budget.
Finally, you’ll need to provide evidence of any assets that you own (e.g. cars or homes) and a list of your current liabilities (e.g. outstanding auto loans).
What additional costs should I consider?
Buying a home isn’t as simple as just applying for a mortgage. There are a host of additional costs that you must consider before you begin your application. As a guide, these costs can potentially range into the tens of thousands.
To give you an idea, common costs associated with buying a house include:
- Stamp duty
- Legal fees and conveyancing
- Pest inspections
- Moving costs
- Various mortgage fees (e.g. application fees)
- Renovation costs
Can the first home loan deposit scheme act as my deposit?
If you’re a first-home buyer looking to take out a mortgage, then the government may act as the guarantor through the First Home Loan Deposit Scheme. In short, if you cannot pay a full 20% deposit, then the government will guarantee the difference. However, you must still repay it.
Unfortunately, this is not an option for no deposit loans. The government will only make up for the shortfall between 5% and 20%. They will not act as the guarantor if you cannot pay a deposit at all.
Can I get a no deposit home loan with bad credit?
While bad credit loans have become more prevalent in the personal loan market over time, it’s not quite the same when it comes to home loans.
In short, without good credit history, it will almost certainly be difficult to receive approval. Unreliable borrowers usually are not offered home loans given the significant commitment that is required. Lenders instead prefer to deal with borrowers who have a proven track record of being reliable and trustworthy borrowers.
Having said this, if your credit isn’t the best, it may still be possible in some cases. However, this is contingent upon you proving that you are in a secure financial position. Moreover, you must have a guarantor on your loan too. Again though, lenders retain the right to offer loans where they see fit. As a result, a poor credit record can often make it tough to secure approval.
Will I receive an outcome on the same day that I apply?
You almost certainly will not.
As we’ve discussed, there are a number of steps involved in the home loan application process. As a result, unlike with same day approval personal loans, you typically won’t receive an outcome for a few business days. Moreover, times may vary depending on the nature of your application.
Can I get a no deposit home loan on Centrelink?
While loans on Centrelink may be possible to cover minor expenses, they may be trickier to access when it comes to home loans.
In any case, if benefit payments account for some of your income, then approval may still be possible. However, this will hinge on your lender accepting these payments as a legitimate source of income. Moreover, you will need to have a strong credit history and have a well-managed budget too.
Finally, if benefit payments account for all of your income, then approval likely won’t be possible. After all, it is highly likely that your income will not be sufficient to meet the requirements.
What about if I’m unemployed?
If you’re looking to apply for a home loan, then you typically must be employed. If you are not, then you may be ineligible and your application may not progress.
In short, this simply comes down to income. Without a job, you will not be earning sufficient income to cover the mortgage payments along with your regular expenses. As a result, you won’t be offered a loan with no job.
What credit score is needed for a mortgage?
In short, exact credit score requirements will vary between lenders. As a result, it is difficult to provide a clear answer.
Having said this, in most cases, your credit score will need to be good. Mortgages are a significant financial commitment meaning that lenders typically won’t offer them unless you are a good credit borrower in a strong financial position. As a result, the higher your score, the better.
In any case, consult with a variety of lenders to determine what their minimum credit score requirements may be.
Who can I ask for help?
Mortgages can be tricky. Moreover, they’re such a significant commitment that it’s always a good idea to consult with a professional.
Approach a mortgage broker and they may be able to guide you through the process. They’ll assess your financial situation to determine what could work for you. From there, they may be able to find a home loan that’s suitable for you. Best of all, they’ll handle the paperwork and application process so that there’s nothing for you to worry about.
Alternatively, there are a range of free online resources that can help too. For example, check out this guide to choosing the right home loan provided by Moneysmart.
No deposit home loans and Monzi
At Monzi, while we’ve provided you with a quick and easy breakdown of no deposit home loans, note that we are not mortgage lenders. Instead, we’re a lender-finder service that can help you find online credit providers when you need a personal loan.
In short, just apply at the top of the page. From there, we’ll aim to match you with an available credit provider from our network in just 60 minutes. Best of all, you can access a range of cash amounts from as little as $300 up to $10,000. Moreover, there are a range of repayment terms on offer too.
So, have an expense that you must cover today? Think a cash loan approved fast online is the right choice?
Apply with Monzi now.
Why might I need a personal loan?
That’s why, at Monzi, we work with lenders who offer a wide range of online credit products. You can borrow amounts from $300 and $10,000 and use them to cover almost any personal expense. All you need to do is provide your reason when you apply.
To give you an idea, common reasons for applying with Monzi include:
- Car repairs
- Debt consolidation
- Household maintenance (e.g. plumbing expenses)
- Minor renovations or upgrades
- New appliances or white goods
- Travel costs
- New furniture
If your expense doesn’t appear on this list, that’s okay. This was just a quick list to get you started. There are many more reasons that you may need to apply with Monzi. Whatever your reason, we may be able to help. Apply today.
How do I apply with Monzi?
First things first, you must make sure that you are eligible. So, before beginning your loan application, check that you meet these four criteria:
- Australian citizen OR permanent resident
- 18 years or older
- Have a contact number and email address
- Have an online transaction account with at least three months of history.
Now that you’ve confirmed your eligibility, you can move onto applying. With Monzi, there’s just a few simple steps to complete your online loan application. All you need to do is:
- Select your loan amount as well as your repayment term.
- Complete Monzi’s online application form.
- Kick back and relax while we set about finding an available lender willing to assess your application.
- We’ll let you know the outcome of our search. If we’re successful, then your new lender will be in touch.
That’s all there is to it. If you apply during business hours, then you may be paired with a lender in just 60 minutes. How good is that?
Is a personal loan the right choice for me?
In short, you must decide for yourself.
On a positive note, fast loans allow you to access the cash you need now while dividing your costs over the coming months or years. As a result, they could be a manageable option if you’re facing a cash shortfall.
However, they are by no means a perfect solution. In short, there are costs associated in the form of home loan interest rates and fees, meaning that you will always repay more than the principal amount that you borrowed. As a result, it’s important to understand your budget and the total costs before you apply.