Can you buy a house with no deposit?

The above question may sound more like a manifestation, for being able to someday buy their own home is a dream of many. But in this economy, even putting down a 20% deposit is becoming difficult for many Australians. But what if we tell you that you can buy a home in Australia at zero percent deposit? Yes, it is possible to purchase a house without the mandatory 20% deposit. In this blog, we’ll discuss the various ways in which you can you buy a house with no deposit or without any upfront payment. Sounds like a dream but it’s a reality. However, this reality comes with its own set of conditions that we’re going to discuss later in this blog. But first, let’s understand the traditional way of doing things.

Buy a House with No Deposit: What You Need to Know

What are the traditional deposit requirements?

Most Australian lenders require you to pay a 5-20 percent deposit which is 20% of the property’s purchase price. This deposit plays an important role in the lender borrower relationship in these ways:

It represents the borrower's capacity to save and manage their finances.
It reduces the deposit amount from the principal amount, reducing the total amount on which interest is levied, thereby reducing your monthly mortgage payments and your overall costs.
Paying an upfront deposit eliminates the need for Lenders Mortgage Insurance which safeguards lenders’ interests in cases of loan default. It further reduces the mortgage payment.

However, with rising home prices in Australia, with top tier cities such as Melbourne having a median house price of AUD $800,000, we’re looking at a 20% deposit of AUD $160,000. It’s very difficult for an average buyer to procure such a huge amount. However, there are certain ways you can buy a house with no deposit or without paying any deposit, which we’re going to discuss in the next segment.

What are the different ways of getting Zero Deposit Home Loans?

Zero deposit home loans are the mortgage products that require zero upfront payment. Lender provides the loan that 100% matches the purchase price of the property. There are different ways of getting a Zero Deposit Home Loans including various government initiatives. These methods are:

Guarantor Loans

A guarantor loan is the most common way of obtaining a zero-deposit home loan. Usually, your close family member will leverage the equity in their own property to guarantee a part of all your loan. It allows the lender to loan you 100% of the purchase price of the property. It requires zero deposit, and the borrower may not be liable to contribute towards LMI in some cases due to guarantor being the insurance a lender needs. Borrowers are able to access better interest rates through this route.

However, it may have serious downsides if the borrower is unreliable or unable to make mortgage payments, which may result in foreclosure of the guarantor’s property. Guarantors may end up losing their home and it will strain close family relationships. There are certain eligibility criteria that must be met to be able to procure a guarantor’s loan:

What are the various government support schemes that facilitate zero deposit home purchase in Australia?

Both the federal and state governments have rolled out first home buyer assistance programs that allow first time home buyers to purchase residential property by reducing the high deposit barrier. We’ll discuss these schemes one-by-one:

First Home Guarantee

First Home Guarantee (FHBG), previously known as the First Home Loan Deposit Scheme (FHLDS), is part of the Australian government’s Home Guarantee Scheme (HGS). Under this scheme, a part of the eligible home buyer’s home loan is guaranteed by Housing Australia. It enables the home buyer to purchase a home with 5% deposit with Housing Australia guaranteeing 15% of the value of the property. It’s not a cash payment nor a deposit but home buyers can use this guarantee towards completing their 20% home loan deposit without the need to pay LMI. 

First Homeowner Grant (FHOG)

If you’re a first-time home buyer purchasing a newly built home valued at $750,000 or less, you’re eligible for a one-time grant of $10,000, the First Homeowner Grant. The home must not have been previously occupied or sold. Apart from this one-time grant, first time home buyers are also eligible for a one-off duty exemption of up to 50% for a principal place of residence (PPR) valued at $600,000 or less, if you entered into the buyer agreement or contract before 1 July 2017. This exemption can be used towards the deposit of the house.

Homebuyer Fund

Victoria’s Homebuyer Fund or the Shared Equity Scheme allows eligible buyers to purchase a home with as little as 5% deposit. The Victorian government can contribute up to 25% of the purchase price in exchange for an equivalent share of the said property. Therefore, the net concession comes at 20%, equalling the deposit towards your home, removing the need for Lenders Mortgage Insurance. Since 1 June 2024, the regional purchase price cap has increased from $600,000 to $700,000.

However, there are certain limitations to government assistance for home buyers, such as:

Can I use equity from another property towards paying the deposit?

Yes. If you own a home or investment property, then you can use the equity of that property minus the mortgage to fund the deposit for a second property. This method can’t be called zero deposit in the ideal sense, but it reduces the need for a 20% deposit to be paid upfront.

Can I use gift payment from close relatives towards deposit payment?

Yes, lenders may accept gift payment, also known as gift deposit, from buyers’ close relatives as deposit payment. However, the amount must be a genuine gift and not a loan and must be accompanied by a statutory declaration. The amount must have remained in your bank for 3+ months prior to application. Despite the gift deposit, lenders may still require proof of genuine savings.

Apart from the above-mentioned routes, there are other ways such as rent-to-buy and vendor finance schemes, where developers allow you to pay rent with a part of it going towards the deposit. However, this method is often accompanied by exorbitant interest rates, inflated prices, and legal risks.

In a nutshell, even though it’s possible to buy a home with zero deposit, it comes with its own set of risks. However, with the right property advisors, you can navigate these risks and choose what’s best for you. At Blue Chip Properties, we help buyers through all the ways you can buy a home with zero deposit in VIC and low-deposit homes. With our personalised property consultation, you can save on hefty deposit payments, reduce tax liabilities, and make your property-buying journey stress-free. Give us a call for your free consultation today!

Can you buy a house with no deposit?