Are you a first-time home buyer who is worried about not having enough savings in your bank account? Don’t worry – there are several loan options that can help you avoid putting down a deposit.
To help you out, we’ve prepared some useful tips on getting first-time home buyer loans with zero down payment and singled out the best alternatives currently available.
How to buy a house for the first time with no money down
There are a number of lenders in australia that offer no deposit loans to first-time home buyers; you just need to choose the right option that works best for your financial situation. Here are a few things you can do:
- Take out a 105% guarantor loan;
- Use equity as a deposit;
- Apply for the first home loan deposit scheme;
- Use a gift letter to get a no-deposit home loan;
- Take out a personal loan for a home deposit; .
If your loan request is approved, lenders will determine the amount you’ll get based on your income and monthly expenses. The sum will vary from one lender to another, so it’s important to pay attention to:
- Existing debts and liabilities;
- Your deposit size;
- The value of your property;
- Credit history;
- Employment history.
If you want to increase your eligibility and ensure you get a chance to choose between some of the no-money-down homes for sale, cut off unnecessary expenses in the months prior to the loan application.
What credit score do you need for no down payment?
The credit scores that lenders use to decide whether or not to lend money to you, start from zero to 1,200, with anything over 700 being considered a good credit score (depending on the credit reporting agency).
The higher your rating, the more chances you have of getting approved for a loan.
First-time home buyer loans with zero down
You might be wondering, “can I buy a house with no money down and no closing costs?”. As of recently, australians can get no money down loans on houses if a parent or family member signs up as a guarantor on the mortgage. Lenders use this method to avoid the risk of losing money if you, by any chance, forfeit the payments.
A guarantor can be an immediate family member, a partner, and sometimes even a sibling, grandparent, or a close friend. In order to be accepted as a guarantor, they need to be able to provide proof of having:
- A good credit score;
- Stable monthly income;
- Equity in a property to be used as security.
Additionally, you can opt for the alternative option of receiving a cash gift from your parents. While some lenders don’t accept gift letters, as they don’t have the same value as genuine savings, you can consult a mortgage broker to find out which lenders do.
If you decide to follow this route, you’ll have to fulfil certain criteria in order to confirm the source of the deposit. One of such requirements is providing a statutory declaration, which is a document that proves that you have money handed over to you unconditionally. Moreover, you need to make sure your gift letter contains:
- The name of the gift provider;
- The name of the gift recipient;
- The amount that is being gifted;
- Confirmation that the gift is unconditional, non-repayable, and non-refundable;
- Date of the agreement;
- Signature of the gift provider.
It’s important to note that sometimes these applications are susceptible to harsh credit scoring assessments, which can result in the gift letter being declined from serving as a deposit.
Read more about gifted deposit home loans in this guide.
What are the alternatives to no deposit home loans?
While the zero-down options may not work out for everyone, you can always try to get down payment assistance. Low deposit government initiatives, like the first home guarantee or the first home super saver scheme, can help borrowers get a new home and save up a lot of money, so be sure to make the most of them if you can.
First home guarantee
How much downpayment do I need to buy a house? With the first home guarantee (formerly known as the first home loan deposit scheme), the australian government allows new home buyers to purchase a property with as little as a 5% deposit without having to pay lenders mortgage insurance.
To be able to apply for the FHBG scheme, you’ll need to meet the following eligibility requirements:
- Be an australian citizen;
- Be at least 18 years old;
- Earn up to $125,000 for individuals or $200,000 for couples;
- Never have owned or had an interest in an australian property before;
- Intend to be an owner-occupier of the purchased home.
Furthermore, the property must be residential to be eligible for this scheme. These include:
- An existing house, townhouse, or apartment;
- House and land package;
- Off-the-plan apartment or townhouse;
- Land and a separate contract to build a home.
It should be noted that while a deposit can be as low as 5%, you may be required to provide a deposit of up to 20%, depending on your financial circumstances.
The first home super saver scheme
The australian first home super saver scheme allows you to use voluntary superannuation contributions to boost savings for your new home by at least 30%.
Any contribution that goes into your superannuation can be sent to your FHSSS balance. You can choose to either set up a salary sacrifice arrangement or make personal contributions directly to your fund.
Additionally, FHSSS lets you contribute up to $15,000 a year and $50,000 in total ($30,000 for requests made before 1 july 2022). However, don’t forget that any contribution you make will be taxed at 15% in the fund, except for after-tax contributions.
Can I buy a house with no money down and no closing costs? While it’s more difficult to buy a house without providing a deposit, there are several types of loans and government initiatives that allow for such a purchase.
Whether you sign your parent as a guarantor or you receive a cash gift, make sure to consult with a financial adviser to ensure you are aware of all the requirements and downsides.
1. What credit score do I need to buy a house?
Lenders consider credit scores between 500 and 700 to be average in australia. If you have a lower credit score, you will probably face a tougher time; however, there are many smaller specialist lenders that can give you a chance.
2. How can you get down payment assistance?
Australia has a great set of financial assistance programs that can help with your down payment. However, as per usual, you have to fulfil certain criteria, so be sure to check the eligibility criteria for any program you’re interested in.
3. What documents do you need when applying for a first home loan?
When applying for a home loan, it’s essential that you prove your identity to the lender and show them your income and expenses. Every lender has individual requirements, but passports, birth certificates, and bank statements are always a must.
4. What are the zero-down mortgage options?
After the global financial crisis, aussies can get first-time home buyer loans with zero down payment only if they have a parent or family member as their guarantor on the mortgage.