Can you get a home loan with a five per cent deposit?

Most lenders don’t offer no-deposit home loans anymore – the risk attached to them is too high. However, with some lenders you can still access products with a loan-to-value ratio (LVR) of 95%.

These days, it’s recommended home buyers save as much as 20% of the home’s value, to put towards a deposit. But raising a 20% home loan deposit makes it challenging for first-time buyers to enter the housing market – particularly given the high prices in our capital cities. The good news though, is that under some circumstances you may be able to secure a mortgage with as little as a five per cent deposit.

Borrow 95% of the purchase price

With some lenders you may be able to borrow up to 95% of the value of a property if you meet eligibility criteria. Generally you will have to look as ‘safe’ on paper as possible to offset the increased risk that your high loan-to-value ratio (LVR) presents. Typically this means you need:

  • A clean credit history – on-time repayments on existing debts over at least the last six months;
  • A strong asset position – the lender will determine the strength of your assets based on your age and income;
  • Stable employment – you will typically need at least six months in your current job, although some exceptions may apply;
  • Low personal debt – this figure should not amount to more than five per cent of the value of your property;
  • Some genuine savings – this should amount to at least five per cent of the property’s value to make up the shortfall of the loan, and cover the expenses associated with buying a property. Some lenders will also take the property type and location into account when considering your application. Supply and demand means that there will be more volatility in some housing markets (such as inner-city units) than others.

Are there borrowing limits for a 95% home loan?

Some lenders may allow you to borrow up to $1 million if your application is strong enough. However the majority of lenders don’t offer 95% home loans on amounts over $800,000. While borrowing large sums can enable you to buy sooner, it’s worth remembering that the more money you put into your property upfront, the less you’ll pay in interest over the course of your loan. Furthermore, if you borrow more than 80% of the value of your property, you will also need to add Lender’s Mortgage Insurance (LMI) to your loan.

What is LMI?

LMI is a mortgage insurance premium that protects the lender’s funds should the borrower default on their repayments, and the property be sold for less than the outstanding debt on it. It is a one-time fee that is paid at settlement, but that can usually be included in the loan.

How much LMI will I pay?

LMI on a 95% home loan varies between 1.5% and 5.1%. How much you have to pay will depend on the size of the loan. Capitalising your LMI places it on top of the loan, which means you pay interest on the fee over time. This also raises your LVR, though most lenders don’t allow this combined amount to go beyond 97% of your home’s value.

Which lenders approve 95% mortgages?

An UNO adviser can help you find a lender with the home loan product you want. Typically this would be through a non-bank lender. Major lenders are wary of loans with high LVRs because of the extra risk that they pose. Specialist lenders are more willing to take on the risk, although they counterbalance this with higher interest rates on their loans. Most standard home loan features are available with 95% loans.

What other options could I consider?

Instead of taking on more debt and paying increased fees and charges for it, consider whether there are other ways that you could raise money for a deposit. Some lenders will accept ‘genuine savings’ for a home deposit from other sources than a personal savings account. These can include:

  • Tax refunds;
  • Inheritance;
  • Money raised through the sale of shares or assets;
  • First Home Owner’s Grant;
  • Monetary gifts.

Gifted funds

Many first-time homebuyers put money gifted to them from their parents into their home deposit. As long as funds are gifted and do not need to be repaid, most lenders accept financial contributions from close family.

A guarantor loan

Similarly, sometimes parents serve as guarantors for a loan. In this case they do not need to pay money upfront, but they put up assets – such as property or savings – as security against a percentage of your home loan. In this case you do not need a deposit at all and will not be required to pay LMI. A guarantor loan will also give you an increased choice of lenders. This could mean a more competitive product in terms of the interest rates, fees and charges you will pay on your mortgage.

What to do next?

With the right lender it’s possible to borrow up to 95% of the value of your home. However you’ll have to carefully consider whether this is the best strategy for you, and you’ll also need a strong application to be approved. Before starting your home loan application, we recommend you do the following:

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February 19, 2024
We chose Uno Home Loans from their impressive web site knowing we were going to find it hard, on many fronts, to qualify for a home loan. We were incredibly fortunate to be assigned Mike Parsons as right from the get-go, despite the complexities, he hit the ground running for us. He was incredibly knowledgeable, with years of experience but what was immediately apparent and impressive was that he was totally invested in getting us over the line, doing absolutely everything possible, including working around the clock. Despite it being a relatively small loan in the order of things, Mike never missed a beat, getting docs ready, following up and answering every request from the proposed funder immediately. He kept us informed on progress the minute anything happened, and again if anything needed to be done, he was right on it. In short, we highly recommend Uno, and Mike, knowing what a remarkable job he did, over many weeks, to get us our loan. He got us a great deal, with far better rates than we expected, so we couldn't be happier. In fact, without doubt, you'd be hard pressed to find a more personable, sharp, hard working, dedicated professional who clearly prides himself on getting his customers standout results.
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Our mortgage recently came up for renewal, and with interest rates skyrocketing we were looking for ways to minimise the impact. Michael and his team were proactive and attentive. Michael spent time with us to understand our circumstances. He found mortgage options that worked with our current financial situation and longer investment plans. He presented clear options, providing guidance where needed. He and his team were helpful and responsive - streamlining the process and keeping us updated through the negotiations. In the end, Uno did the heavy lifting and secured a significantly better rate than our current bank offered, all with friendly, personal service. We would highly recommend UNO Home Loans.
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January 15, 2024
I cannot help but congratulate Scott Wilkinson of UNO Home Loans for being an absolute credit to both his company and the entire loans industry. Scott is a truly rare gem of a broker in that he will not only go the extra mile to achieve for each customer the very best deal, but his knowledge of all and sundry within the industry is unsurpassed (you will see what I mean if you speak to him). Additionally, Scott has a clear passion for imparting his wealth of information with each customer, whereas the conversation with most other brokers would simply be over if they could not get you the best deal. For me, Scott Wilkinson of UNO Home Loans stands head and shoulders above the competition and I feel privileged to benefit both from his expertise and professionalism whenever it is time for a refinance or new loan.
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January 11, 2024
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January 9, 2024
I highly recommend Mike Parsons as a mortgage broker. I couldn't fault the service provided by UNO. Thanks Mike!
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December 20, 2023
Thank you Eren Tan for the amazing service and support. Our Loan was a little tricky and complex for other lenders but Eren managed to get it over the line in record time. His professionalism and dedication to our needs was exceptional. If you need a Loan no matter how complex your situation, make sure you contact Eren at UNO Home Loans.
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December 20, 2023
Buying & selling a house at the same time is very stressful but Scott Wilkinson from UNO home loans made sure we knew what was happening & took most of the stress away. He always kept us up to date and if we had a concern or wanted clarification on something we were able to call him, if he didn’t know the answer straight away he will find out and contact us back.. now we are enjoying our new house and turning it into a home :)
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December 18, 2023
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December 11, 2023
To be able to recommend Scott Wilkinson for your mortgage broker was a privilege. We had deals fall through but Scott supported, guided and stuck with us, proper partnership. The whole team at UNO helped us and supported us right through to after settlement. Made sure everything was correct and how we are progressing. Communication was amazing and straightforward and easy to understand. Transparent. We can not Recommend Scott and the team as Uno high enough. Use UNO with confidence.
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November 3, 2023
If you’re looking for a trustworthy, thorough, reliable & knowledgeable Mortgage Broker then you must call Anita Callaghan! I can’t even imagine how stressful this process would’ve been without her. Anita went above and beyond to make sure she answered every question, responded to every text (even on weekends/after hours), and followed up on every detail to ensure we had all the info we needed. Anita is a true people person who is warm, empathetic, kind and supportive. You can tell she loves helping people and loves what she does, which is probably why she’s so good at it! Can’t thank you enough Anita, or recommend you more highly! You’re the best!
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