Do I need a 20% Deposit to get a Home Loan

The number of home loans today that are approved with less than 20% deposit is dropping. Many more customers are approaching lenders with at least 20% available for a down payment on their homes. Is it possible to get in the door with a lender with less than 20% deposit?

At least a 20% deposit isn’t completely necessary if you are looking at home loans across Australia. You don’t always need to have this amount of money available before a bank will talk to you or before you can get preapproval for a home. Most lenders across Australia are prepared to offer loans at less than 20% and there are even some lenders across Australia that will offer you a home loan with as little as 5% as a deposit.

5% is a much more manageable target. For the average Australian, a 5% deposit on a $500,000 home could be just $25,000. If you are applying for a home loan with less than 20% however you will also have to incur some other costs. It’s likely that you will have to pay lenders mortgage insurance, and it’s also quite likely that your mortgage will have steeper penalties and a higher interest rate than if you approach lenders with 20% down.

Lenders mortgage insurance premiums can vary depending on where you end up getting your coverage. Mortgage brokers can often help you to find the best lenders mortgage insurance, but for a home at around $500,000 with a 5% deposit you can expect to pay up to $17,000 extra on your mortgage just for this insurance.

If you are going to be applying in a highly populated urban area, you may also want to rethink the idea of applying for a home loan without a 20% deposit. Some commercial properties and high density locations that move fast can often require at least a 30% deposit. If you’re planning on making a large investment or living in the heart of the city like Sydney, you may need to have the savings to acquire a home.

The short answer is that you can secure financing with less than a 20% deposit but it is often advantageous to have at least 20% so that you can truly comparison shop with a mortgage and avoid extra fees.

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