Understanding the basics of buying with no deposit

Can you actually buy a home with no deposit?

You can buy a home with as little as a 2% to 5% deposit through the Australian Government 5% Deposit Scheme, but buying with zero deposit in the traditional sense is not available through standard lenders. What is possible is accessing schemes that reduce the deposit requirement to a small amount, or using equity from a family member's property as security, sometimes called a family guarantee. Both approaches let you get into the market sooner, but they work very differently.

For buyers in North Lambton, where many homes sit within reach of the scheme's $1,500,000 price cap for regional centres in NSW, the 5% Deposit Scheme is often the most realistic path. It allows you to borrow without paying Lenders Mortgage Insurance because Housing Australia provides a guarantee to the lender. That can save tens of thousands of dollars upfront.

What the 5% Deposit Scheme actually covers

The scheme covers first home buyers who can put down at least 5% of the property value. Housing Australia provides a guarantee of up to 15% to the participating lender, bringing the combined total to 20% without you needing to pay LMI. For eligible single parents or legal guardians, the deposit requirement drops to 2%, with a guarantee of up to 18%.

There are no income caps, and no annual limits on the number of places available. You apply through a participating lender, not directly through Housing Australia. The panel includes major banks and a range of non-major lenders, and the product options vary by lender. Some offer variable rates, others offer fixed or split structures.

Both the purchase price and the lender's valuation of the property must sit at or below the applicable price cap for your location. In regional centres like Newcastle and Lake Macquarie, which includes North Lambton, the cap is $1,500,000. Outside regional centres in NSW, the cap is $800,000. You can confirm the applicable cap for a specific property using the postcode search tool at firsthomebuyers.gov.au.

How a family guarantee works in practice

A family guarantee is when a parent or close family member uses the equity in their own home as additional security for your loan. The lender treats the combined security as enough to avoid LMI, even though you're not putting down a cash deposit yourself.

Consider a buyer looking at a property at the median for the area. The buyer has no cash deposit but their parents own a home in Waratah with $300,000 in usable equity. The lender agrees to lend the full purchase amount, secured against both the buyer's new property and a portion of the parents' equity. The buyer takes out an owner occupied home loan in their own name and is responsible for all repayments. The parents' property is not at risk as long as repayments are met, but if the buyer defaults, the lender can claim against both securities.

This structure is not offered by all lenders, and the ones that do have strict criteria. The guarantor usually needs to be a parent, and they need to have enough equity that the guarantee doesn't push their own borrowing above a comfortable level. Most lenders will require the guarantor to get independent legal advice before signing.

The arrangement is typically reviewed after a few years. Once the buyer has built enough equity through repayments and any property value growth, the guarantee can be removed and the parents' property released from the loan.

What serviceability looks like when you're borrowing the full amount

Lenders assess your ability to repay based on your income, existing debts, and living expenses, and they add a buffer of at least 3 percentage points above the actual interest rate. That buffer is set by APRA and applies to all new loans. When you're borrowing close to the full property value, the loan amount is higher and the repayments are higher, so serviceability becomes tighter.

A buyer earning $85,000 a year with no other debts and modest living expenses will usually have enough borrowing capacity to service a loan in the range that suits North Lambton properties, particularly if they're buying alone and not carrying credit card debt or personal loans. A couple with a combined income over $130,000 will typically have more room to move. But if you're carrying a car loan, student debt, or regular buy-now-pay-later commitments, those ongoing payments reduce what you can borrow.

Some lenders also apply debt-to-income limits. Since February this year, lenders can only write up to 20% of their new owner-occupier loans to borrowers with a total debt level of six times their income or more. That limit is calculated across all your debts, not just the home loan. It doesn't rule out borrowing at higher multiples, but it does mean lenders are more selective about who qualifies.

Stamp duty relief and grants you can combine with a low deposit loan

In NSW, first home buyers don't pay stamp duty on properties valued up to $800,000, and a sliding concession applies up to $1,000,000. For vacant land, the exemption applies up to $350,000 with a concession to $450,000. You need to move into the home within 12 months of settlement and live there for at least 12 continuous months.

The First Home Owner Grant in NSW is $10,000, but it only applies to new homes or substantially renovated homes with a purchase price up to $600,000, or a combined land and build cost up to $750,000. It doesn't apply to established homes, which make up most of the stock in North Lambton.

You can use the stamp duty exemption or concession alongside the 5% Deposit Scheme or a family guarantee. You can also use it with Help to Buy, though you can't combine Help to Buy with the 5% Deposit Scheme.

The other costs you still need to cover

Even when you're putting down a very small deposit or using a family guarantee, you still need to cover settlement costs. That includes conveyancing fees, building and pest inspections, loan application fees, and any government charges that aren't covered by a concession. For a property in the mid-range for North Lambton, those costs can add up to several thousand dollars.

Some lenders will let you roll certain costs into the loan, but that increases the amount you're borrowing and the interest you'll pay over time. It also affects your loan-to-value ratio, which can influence the interest rate you're offered.

You also need to show genuine savings or proof that you can manage regular financial commitments. Lenders want to see that you've been setting aside money consistently over at least three months, even if the total amount is small. That gives them confidence that you can handle mortgage repayments.

Choosing between variable, fixed, and split loan structures

When you're borrowing close to the full property value, the loan structure you choose affects both your repayments and your flexibility. A variable rate loan means your repayments can go up or down as rates change, but you usually get access to features like an offset account and the ability to make extra repayments without penalty.

A fixed rate loan locks in your repayments for a set period, which can help with budgeting, but you're usually restricted on extra repayments and you'll face break costs if you want to refinance or sell before the fixed term ends. A split loan gives you a portion of each, so you get some stability and some flexibility.

If you're planning to pay down the loan quickly or you expect your income to increase in the next few years, a variable or split structure usually makes more sense. If your income is tight and you need certainty, a fixed portion can help. Your choice also depends on what the lender offers under the scheme or guarantee structure you're using, because not all lenders offer all structures on every product.

Call one of our team or book an appointment at a time that works for you. We'll work through your income, your savings position, and the properties you're looking at, and help you find a lender and loan structure that fits.

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