Gone are the days when a no deposit home loan was an option, as Australian lenders no longer offer these types of mortgages post the Global Financial Crisis (GFC). The only exception is if you have a guarantor. However, if you possess a 5% deposit, you might still qualify for a home loan. 

Qualifying for a 5% Deposit Home Loan 

To determine eligibility for a 5% deposit home loan, you’ll generally need to meet the following criteria: 

• Good Income: Lenders scrutinize your ability to manage a 5% deposit home loan, known as your ‘serviceability ratio.’ 
• Stable Employment History: Typically, a 6 to 12-month history in the same job is preferred. 
• Clear Credit History: A credit file free of defaults and minimal credit inquiries over the past 6 months is essential. 
• Strong Asset Position: Lenders assess your income-to-asset position, assuming that a few years of full-time work correlate with owning a car and substantial savings relative to income. 
• Little to No Existing Debt: Holding multiple credit cards or personal loans raises red flags for most lenders. 
• Proof of 5% in Genuine Savings: Consistent deposits into a savings account over 3 months usually fulfill this requirement. 
• Property Type or Location: Some banks are conservative about property in high rises or small/regional areas. 

Home Guarantee Scheme Expansion (2023-24) 

Recent changes to the Home Guarantee Scheme have expanded eligibility: 

• Groups of family members, including friends and siblings, can jointly apply for the First Home Guarantee and Regional First Home Buyer Guarantee. 
• Non-first-home buyers who haven’t owned property in the last 10 years can apply. 
• Single legal guardians of children, like aunts, uncles, and grandparents, can apply for the Family Home Guarantee. 
• Australian permanent residents are eligible for all three schemes. 

Borrowing Limit with a 5% Deposit 

With a 5% deposit and a robust financial position, you might borrow up to $2,500,000 with specific lenders. This unique offer deviates from standard lending policies tied to Lenders Mortgage Insurance (LMI) providers. 

Importance of a 5% Deposit 

While banks prefer a 10-20% deposit to reduce risk, first home buyers may qualify for the First Home Owners Grant (FHOG) or the First Home Guarantee, starting from January 2020. Despite these options, a 5% deposit is the minimum required, as no deposit home loans are no longer available. The exception is a guarantor loan where your parents secure the entire loan amount using their property. 

Lenders Mortgage Insurance (LMI) Considerations 

Typically charged for borrowing over 80%, LMI premiums can be significant. While LMI is unavoidable unless you have a 20% deposit, some lenders offer alternatives: 

• Waived LMI or a reduced premium for loans up to $800,000 and no more than 95% of the property value. 
• Criteria include genuine savings, a clean credit history, and property located in a capital city or major regional center. 

If you don’t qualify for reduced mortgage insurance, some lenders allow you to capitalize your LMI premium, avoiding upfront payment. 

Interest Rate Discounts 

Special offers, such as a 1.10% interest rate discount for loans over $500,000, are available. Eligibility criteria include having at least 5% in genuine savings, a job tenure of at least 6 months (24 months in the same line of work), and a clean credit history. 

Borrowing More for Extra Costs 

An additional loan facility with a limit of up to $20,000 is offered by specific lenders to cover extra costs like solicitors’ fees and stamp duty at settlement. 

Source of the 5% Deposit 

While genuine savings are a standard requirement, various sources can meet this criterion: 

• Your savings or term deposit. 
• A gifted deposit from parents. 
• Inheritance, tax refunds, or sales of assets. 
• Government incentives like the First Home Owners Grant. 

Some lenders may approve a 5% deposit home loan without the genuine savings requirement. 

Strategies for Saving a Deposit 

Saving a 5% deposit can be challenging with rising property prices. Strategies include setting savings goals, making a plan, having a tiered approach to saving, and exploring ways to trick yourself into saving. 

Addressing Bad Credit 

Even with a few defaults, a specialist lender may consider your situation if you have an otherwise strong financial situation. Strategies include paying off small debts, reducing credit card limits, and paying bills on time for six months.