How to Buy a Property in Without a Deposit

The deposit is often the greatest barrier to property ownership in Australia. But does this need to be the case? Is there a way to bypass this requirement?

In some cases, you can buy a property in Australia without a deposit.

To help you learn more about the options open to you, we've crafted this guide to buying property with no deposit. Here’s how.

Vendor Financing

If the seller agrees, and if you can adequately prove your ability to service the credit facility through its entire term, they might be able to loan you the amount to cover the deposit or even more. This will give you the upfront capital you need to achieve a loan for the remaining balance.

Using Existing Equity

If you have a property already and have a good history of payments made on this property, then you will have equity that you could draw on. You can decide to leverage some of this equity to use as a deposit, or you can choose a slightly more complex option and cover both deposits with a single loan, secured against the built-up equity in the property.

First Home Owners Grant

The First Home Owners Grant (FHOG) is an Australian government program that gives grants to eligible first home buyers. Rules apply differently depending on your state, but in general you will need buying a new home or a property that nobody has lived in before, below approximately $750,000 and you will need to live there very shortly after purchasing.

The grant is around $10,000 so it is unlikely to cover the entire deposit for most house purchases. However, it can relieve the financial burden to some degree and be used in conjunction with another option. 

Personal Loans

Taking a personal loan for the purpose of purchasing a property is possible, if your financial institution accepts applications from borrowers who have used a personal loan in place of their deposit to up to 95% of the loan. 

However, this is not recommended for the reason that personal loan rates are significantly higher home loans at 7.5% to over 11%, compared home loans at approximately 2.5% and expose you to significant risk. If considering this avenue for purchasing a home, be sure to consult with a financial professional..

Rent-to-Own Options

Paying rent, even to use a property that you love, feels like a waste of money. This is because you are paying a considerable sum to another party, each and every month, without building equity or accruing interest.

For rent-to-own options, the rent you pay goes towards your eventual purchase. However, you will likely find that you end up paying more to acquire the property than you would if you had the means to pay a deposit up front.

Family Guarantor

A lender may be able to offer you a mortgage, up to 100%, if your application is backed up by a family pledge guarantor. This guarantor, such as a family member, agrees to take on the mortgage payments if you cannot keep up or if you default.

This means that the guarantor must be able to handle an element of risk and to prove that they are in the financial position to handle the mortgage payments if necessary.

A guarantor will need to have equity in their own property, a good income and reasonable credit score.

(Note that in the current climate, banks do not seem to be currently offering 100% guarantor home loans).

100% LVR Home Loans

While uncommon, banks sometimes provide home loans that cover 100% of the purchase price of the property. The requirements for these loans are stringent, so you will need to have a strong repayment history, stable (and high) income to comfortably afford repayments, and a high credit score.

Aside from the element of risk in undertaking such a large loan and the size of monthly repayments is that with any other loan for more than 80% you will need to pay Lender’s Mortgage Insurance (LMI). LMI premiums vary by lender and your property value but may, as an example, add $10,000 - $40,000 to the cost of buying your home.

(Currently it is expected that 100% LVR home loans are unlikely to be available due to the current covid-19 health emergency).

Co-purchase with a Partner

For those who are unable to draw upon the capital required to fund a deposit, or for those who have the capital but lack the investment time, co-purchasing is a great option.

Co-purchasing involves purchasing together with another person, often with one party bringing capital to the transaction and the other party providing opportunity, skill or other development to the property. The result is a mutually beneficial relationship and a far easier point of access for purchase.

Read more: How to co-purchase with a partner