How to get low deposit home loans?

Everyone wants to have a place they can call their own. Problem is, saving up for it is not an easy feat.  If you are like everyone else, finding low deposit home loans in Victoria is not that easy. If it was, then everyone owns their own home, right?

The problem is when you search online the amount of information you find is overwhelming. Nothing makes sense because a lot of the information you’re getting is conflicting. First off, find a good mortgage broker (look no further) and let them be your Sherpa.

Getting into the market via low deposit home loans in Victoria is like climbing a mountain.  I believe no one climbs Everest without a team of Sherpas. That’s just crazy talk. And on this mountain, your main Sherpa is your mortgage broker.

Many people will tell you to get a pre-approval, settle a 20% deposit, and pay a monthly mortgage fee to make it happen. Thankfully, there are now options to help you get low deposit home loans in Melbourne.

In this article, I’ve listed a few topics that will help you take advantage of this approach.

1. Know your options with grants & schemes

There are many choices when it comes to low deposit home loans particularly in Melbourne.  The state and federal governments recognize how hard it is to get into the market – especially for first homeowners.  Qualifying for one of these can allow you to get in the market with a low deposit.  In 2019, a low deposit home loan is considered as 5% of the purchase price.

There are a few grants & schemes that can help you get a low deposit home loan in Melbourne:

1. The First Home Loan deposit scheme.  This is a federal government scheme where they issue a guarantee to the lender.  If you qualify, you will not be charge lenders mortgage insurance (LMI) which can save you up to 4% of the purchase price and get you into the market with a 5% deposit.  In dollar terms, it can be as much as $20,000 savings on a $500,000 property.
2. The First Home Owner Stamp Duty Concession. This is a state government concession where if you are a first homeowner and are buying up to $600,000 you get all of your stamp duty waived! That’s about a $30,000 saving on a $600,000 home.
3. The First Home Owner Grant AKA FHOG.  The FHOG is available for first home buyers looking to purchase or build a new home.  At the moment the Victorian government is handing out $10,000 for metropolitan Melbourne and $20,000 if you fall under regional Victoria.  If you qualify for the FHOG you can use this as a deposit and access a low deposit home loan that way.

2. Use a family guarantor loan

A family guarantor loan is when a family member uses their property to help secure the loan.  In this case, the bank are happy because they hold more property which means you don’t have to have as much deposit.

With a family guarantor home loan, you will avoid paying lenders mortgage insurance (LMI) and get access to a cheaper interest rate.

Forget low deposit home loans.  In some cases, you can get in with no deposit if you’re lucky enough to have a family member that can go guarantor.

3. Using a personal loan

We sometimes have clients that come to us and have tried to take a personal loan to qualify for a low deposit home here in Melbourne.  As a general rule, we would not advise doing that.  In most cases, using a personal loan to make up the deposit for a low deposit home loan will not work.

You need to chat with your mortgage broker and they will give you the best options.

4. Clean credit background

The better your credit score, the more likely you will be approved for a loan. If you don’t have good credit yet, it’s never too late to make improvements. To understand more on credit files, check out this blog.

The lower your credit score, the harder it is to get approved for low deposit home loans.

5. Work with a mortgage broker

It always helps to have expert advice when you need it. I can say this with the experience helping buyers get into their own homes for over 15 years. This saves you from pitfalls and guesswork.

I cannot emphasize this enough – work with a good mortgage broker!