Can you buy a first home with a low deposit?

Through government backed loans or individual lender products, eligible buyers can secure their first home with just a 5% deposit. A low-deposit home loan enables you to purchase property with less than the typical 20% deposit. For example, on a $500,000 home, a 5% deposit amounts to $25,000—significantly more achievable than saving $100,000 for a 20% deposit.

Is a low-deposit mortgage right for you? Here’s what to consider:

Pros:

1. Get on the Property Ladder Sooner: Instead of waiting to save a 20% deposit, low-deposit loans make it possible to buy now. For a $500,000 home, you’d need only $25,000 through the First Home Loan scheme.
2. Competitive Rates for First Home Loans: Some lenders offer their best rates to First Home Loan customers, allowing you to avoid the ‘low equity margin’ that usually applies to low-deposit loans.
3. Equity Building from Day One: Buying sooner means building equity as prices rise, adding value to your property investment over time.
4. Lower Savings Requirement: With everyday expenses on the rise, saving a full 20% deposit can take years—low-deposit options reduce this hurdle.

Cons:

1. Higher Interest Rates on Standard Low-Deposit Loans: Outside of First Home Loan options, most low-deposit loans come with higher interest rates due to a ‘low equity margin.’
2. Extra Fees for Low-Deposit Loans: The First Home Loan scheme has a one-time fee that’s typically added to the mortgage balance, and many low deposit loan products offered by lenders also attract additional fees.
3. Larger Loan Balances: While low-deposit mortgages speed up the homeownership process, they come with higher monthly repayments, though this may be offset by property appreciation.

Final thoughts

Low deposit home loans provide an accessible pathway to homeownership, allowing buyers to secure mortgages with less than the traditional 20% deposit. The First Home Loan scheme offers eligible borrowers the opportunity to buy a home with just a 5% deposit, making it easier to enter the property market. However, it’s important to understand that eligibility for low deposit lending varies based on individual circumstances.

While these loans can help get you into a home sooner, they may not be the best solution for you. Factors such as higher interest rates and additional fees can impact long-term affordability.

If you’re considering a low deposit home loan, it’s crucial to evaluate your financial situation and explore all your options. A mortgage broker or adviser can help you assess your financial position and provide you with the necessary information to determine if low deposit finance is the right choice for you.