The bank of My Deposit Isn't Big Enough to Buy A Home is sadly a growing one - but there is at least one way to still buy a home with no cash behind you.

Well, sort of.

Can I buy a house with no deposit?

No, you can't.

A no deposit loan is actually a misnomer as you can't buy a house with zero deposit, except in extremely rare cases and almost never from the Big 4 Banks.

Even the smaller or specialist lenders who offer no deposit loans have very tight restrictions on and around them.

As a side note: such loans were allowed before the Global Financial Crisis (GFC) in 2007-2009, but lending regulations have since been tightened - and rightly so as a major cause of the GFC was loose lending regulations.

Indeed, according to CoreLogic's Washington bureau, a third of all US mortgages in 2006 were low or no doc ones while borrowers with very low credit scores also found it simple to snap up a mortgage.

So, since the GFC, lenders have followed a tough love mortgage trend.

But, back to no deposit loans.

A more accurate description for such loans would actually be a guarantor loan, which we talked about recently.

This loan sees a close friend or family member act as a guarantor to your lender, offering a deposit in your stead and also agreeing to repay all of your mortgage if your finances go south.

Guarantor loans also mean you don't need to pay Lenders Mortgage Insurance (LMI).

NB: First-home buyers (FHBs) take note - state and federal governments have also recently stepped into the no deposit ring and can now act as your guarantor, and/or have grants and schemes available to help you buy.

But more about these loans - and low deposit ones - a little later.

What is a guarantor home loan?

In basic terms, you need to ask a close friend or family member to guarantee to your lender that they'll repay your mortgage if you can't, via their own assets and home equity.

As with your average home loan, your guarantor must come up with about 20% in equities or assets for a deposit.

What are the risks and benefits of a guarantor home loan?

Risks:

• Lenders consider guarantor loans to be very risky
• Therefore, both yours and your guarantor's financial and employment details will need to be 200% fantastic
• Expect much higher interest rates and fees
• The guarantor is responsible for both their own home's repayments and that of the guarantee-er

Benefits:

• Buyers won't have to wait to save deposit to buy a home
• They also won't have to pay LMI and they have financial security

What are my other options if my deposit is minimal?

Let's discuss low deposit loans and government guarantor loans for FHBs (otherwise known as first-home grants or schemes).

Low deposit loans see some (and we emphasise, only some) lenders allowing you to purchase property with just a 5% deposit ie you will be borrowing 95% of the house price.

Excellent news, right?

Unfortunately, you will need to pay LMI for such a loan and expect your interest rates to be higher than average because as you can imagine, you are of high risk to lenders.

Between these two financial points alone, you could be looking at tens of thousands of extra dollars - which you thought you'd saved by only needing to pay a 5% deposit.

In other words, while low deposit loans can appear highly attractive, they aren't financially beneficial.

Personally, I believe the same goes for government guarantor loans for FHBs - which have the added unappealing point of the government now partly owning your new home (although you may prefer this over a lender owning part of your property).

Both the federal government and different states are currently offering different FHB loans including and especially those wherein you won't have to pay LMI as the government will act as your guarantor.

We’re here to help

Whatever home loan road you wish to take, we’d love to help you travel it!

We can find you the best home loans from more than 40 of Australia’s biggest banks and specialist lenders and we can also help you refinance your loan to help you keep more money in your pocket.

So, give us a call today at Lending Loop.