No Deposit Home Loans Explained: The Pros, Costs, and Considerations
Key Takeaways
Genuine no deposit loans are rare in Australia; most "no deposit" buying runs through a guarantor, a government scheme, a gift or existing equity, while low deposit loans of around 5% are far more common.
A guarantor uses their own property's equity as security, which can bring you to 80% LVR and avoid LMI, but it puts their property at risk until they are released.
Borrowing closer to 100% means a larger loan, higher repayments, possible LMI, fewer lenders and greater exposure to negative equity.
The pathway suits stable income, strong serviceability and a secure guarantor or scheme; otherwise, building a deposit first is usually sounder.
For anyone trying to buy while paying rent, the deposit can feel like the hardest part of the whole process. With the Reserve Bank of Australia (RBA) cash rate at 4.35% after a series of increases through the first half of 2026 and average variable rates in the high 6% range, saving a large deposit while covering rising living costs is genuinely difficult. It is no surprise that many buyers search for a way to buy with little or no deposit at all.
The term "no deposit home loan" gets used loosely, and that is where confusion starts. What most people are really asking is whether they can buy now without years of savings behind them, and if so, what it costs and what could go wrong. The honest answer involves a few specific pathways, each with real benefits and real risks, rather than a single product that lets you borrow the full price with nothing down.
This article explains what a no deposit loan actually means in Australia, the pathways that make low or no deposit buying possible, the true cost of borrowing with little equity, the risks worth weighing, and how to judge whether this route suits your situation or whether waiting is the wiser move.
The short answer
Genuine no deposit loans, where a lender funds the entire purchase with no savings and no support, are rare in Australia today. Lenders treat them as high risk, so the pathways that exist almost always involve a guarantor, a government-backed scheme, a gift from family, or equity in another property.
What is far more common is a low deposit loan, where you contribute 5% or so of your own and use a scheme or insurance to bridge the gap. For most buyers, the practical question is not "can I buy with nothing?" but "which low or no deposit pathway fits my circumstances, and is it sensible right now?"
No deposit versus low deposit: what borrowers often misunderstand
These two terms are used interchangeably, but they describe quite different situations, and the distinction affects your costs, your risk and which lenders will consider you. Getting the terms straight first makes everything that follows easier to weigh.
A no deposit approach generally means borrowing close to the full value of the property, around 100%, which usually requires a guarantor or existing equity to make it work. A low deposit approach means contributing a small amount of your own, commonly 5%, often combined with a government scheme or Lenders Mortgage Insurance to cover the shortfall. The first relies on someone else's security or assets; the second relies on a modest amount of your own savings plus support. Knowing which one you are actually pursuing changes the conversation with a lender entirely.
How LVR works when you have little or no deposit
The reason deposit size matters so much to a lender comes down to your loan-to-value ratio (LVR), which is your loan expressed as a percentage of the property value. The smaller your deposit, the higher your LVR, and the higher the risk the lender carries.
A 20% deposit gives an 80% LVR, the level most lenders see as comfortable. Borrowing with no deposit pushes your LVR toward 100%, which is the riskiest position from a lender's perspective. Above 80%, lenders generally require Lenders Mortgage Insurance, apply stricter eligibility checks, and offer fewer products. On top of this, lenders must assess your repayments at your actual rate plus a buffer of 3 percentage points set by the Australian Prudential Regulation Authority (APRA), so your loan is tested at around 9.5%. A larger loan from a smaller deposit has to clear that same test, which is why no deposit applications demand stronger income and a cleaner credit file than most.
The pathways to buying with little or no deposit
Because a true zero deposit loan is uncommon, the realistic routes into the market with minimal savings come through a handful of specific arrangements. Each works differently and suits a different type of buyer, so it helps to understand them side by side.
Guarantor home loans
A guarantor loan is the closest thing to genuine no deposit buying. A family member, usually a parent, uses equity in their own property as additional security for part of your loan. This can bring your effective LVR to 80% or below, which means you may avoid Lenders Mortgage Insurance and, in some cases, borrow close to the full purchase price plus costs. The benefit is entering the market without years of saving. The cost is that your guarantor takes on real responsibility, and their property is exposed if you cannot meet repayments, which makes the choice of guarantor and a clear release plan essential.
Government-backed low-deposit schemes
The Australian Government 5% Deposit Scheme lets eligible first home buyers purchase with a 5% deposit and no Lenders Mortgage Insurance, because the government guarantees up to 15% of the property value. From 1 October 2025 it has had no income caps, no waitlists and no place limits, which has made it far more accessible. A separate stream lets eligible single parents and guardians buy with a 2% deposit. This is not strictly no deposit, but for many buyers it is the most cost-effective low deposit route, since it removes the largest extra cost.
Gifted deposits and family support
Some buyers use a gift from family as their deposit. Most lenders accept gifted funds, usually with a letter confirming the money is a gift and not a loan that has to be repaid. A gifted lump sum may not count as genuine savings on its own, which some lenders still want to see, and you will still need funds for upfront costs. Used well, a gift can turn a no deposit situation into a low deposit one with a stronger application.
Using equity from another property
If you already own a property, or are buying with someone who does, you may be able to release equity from it to fund the deposit on a new purchase. This effectively replaces cash savings with existing equity, and is common among buyers moving up or adding an investment. It depends on having sufficient equity and the serviceability to support both loans, so it suits established owners more than first home buyers.
Shared equity and rent-to-own arrangements
Shared equity schemes, such as the means-tested Help to Buy program, let the government co-purchase part of your home, which lowers the loan you need and can reduce the deposit hurdle. Rent-to-own and similar arrangements are sometimes marketed as no deposit pathways, but they vary widely in structure and risk, and deserve careful scrutiny before committing. As a rule, the more unusual the arrangement, the more important independent advice becomes.
The real costs of buying with little or no deposit
The appeal of a small deposit is obvious, but it changes the economics of the loan in ways that are easy to overlook. Understanding the full cost helps you decide whether buying sooner is worth it.
Borrowing with little or no deposit usually means:
A larger loan, since you are funding more of the purchase price.
Higher monthly repayments and more interest paid over the life of the loan.
Lenders Mortgage Insurance, unless a guarantor or scheme removes it.
A narrower choice of lenders, because fewer accept very high LVRs.
A thinner buffer after settlement, since less of your own money is in the deal.
On a $600,000 purchase, borrowing close to the full price rather than with a 20% deposit means servicing roughly $120,000 more debt. At current rates, that adds a meaningful sum to each repayment and a large amount of interest over a 30-year term. The convenience of buying now carries a long-term price that is worth quantifying before you decide.
The risks to weigh
Beyond cost, a small deposit changes your exposure if conditions move against you. These risks are not reasons to rule the approach out, but they are reasons to enter it with your eyes open.
The most significant is negative equity, where your loan is larger than the property's value. If you buy at $600,000 with almost no deposit and prices ease by 5%, you could owe more than the home is worth, which limits your ability to sell or refinance. A larger loan also means more sensitivity to rate rises, since the same rate increase costs more on a bigger balance, and your repayments are tested at the buffered rate for good reason. A thin post-settlement buffer leaves less room to absorb a repair, a job change or an unexpected bill. Where a guarantor is involved, the risk extends to their property as well, which makes their position part of your decision.
Guarantor risk and how release works
Because guarantor loans are the main route to genuine no deposit buying, they deserve a closer look. A guarantor is doing more than vouching for you, and both sides benefit from understanding exactly what is involved.
When someone guarantees part of your loan, they are offering equity in their own property as security for that portion. If you default and the loan cannot be covered, the guarantee can be called on, which puts their property at risk. The guarantee is usually limited to a set amount rather than the whole loan, which contains the exposure. The aim over time is to have the guarantor released, which typically happens once your loan falls below 80% of the property value through repayments and any growth in value, at which point the additional security is no longer needed. Planning for that release from the start, and understanding what happens if values fall and delay it, is part of using a guarantor responsibly.
Who may be suited, and who should probably wait
A low or no-deposit pathway is not inherently good or bad; it depends on how well your circumstances match the risk. A clear-eyed look at your own position is the most useful step you can take.
This approach may suit you if:
Your income is stable and well documented, and your credit file is clean.
Your serviceability is strong enough to handle the larger loan at the buffered rate.
You have a willing, financially secure guarantor, or qualify for a scheme that removes LMI.
You can still keep a modest buffer after settlement despite the small deposit.
It is usually better to wait and save if your income is new or irregular, if you would be borrowing at your absolute maximum with nothing in reserve, if no guarantor or scheme is available and LMI would be a large premium, or if your budget only works at today's rate. Waiting to strengthen your position is not a failure; with little or no deposit, it is often what makes the difference between a durable purchase and a fragile one.
How a mortgage broker compares your options
Low and no deposit lending is where lender policy varies most, and the differences in LVR limits, guarantor rules and scheme handling are not published. This is where a broker adds practical value beyond finding a rate.
A broker can compare which lenders accept very high LVRs, how each treats a guarantor or a gifted deposit, and whether a scheme produces a better outcome than insurance or a guarantee. They can also stress test the larger repayment against your budget and map out a guarantor release plan so the arrangement has an exit from the start. If you are weighing whether a low or no-deposit pathway is right for you, speaking with a mortgage broker in Albury & Wodonga can help you compare guarantor, government scheme and low-deposit options, understand the costs and risks, and decide whether to proceed now or build a stronger position first.
Frequently Asked Questions (FAQs)
Do no-deposit home loans exist in Australia?
True no-deposit loans, where a lender funds the whole purchase with no savings or support, are rare. Most no deposit buying happens through a guarantor, a government scheme, a gift or existing equity. Low deposit loans, where you contribute around 5% of your own, are far more common and usually the realistic option.
What is the difference between no deposit and low deposit?
A no deposit approach means borrowing close to the full property value, usually with a guarantor or equity to make it possible. A low deposit approach means contributing a small amount of your own, often 5%, typically combined with a government scheme or Lenders Mortgage Insurance. The first relies on outside security, the second on modest savings plus support.
Does a guarantor have to pay my loan?
A guarantor is not expected to make your repayments while you are meeting them. They provide equity in their own property as security for part of your loan, and that guarantee can only be called on if you default and the loan cannot be covered. The exposure is usually limited to a set portion rather than the entire loan.
How does a guarantor get released?
A guarantor is typically released once your loan falls below 80% of the property value, which happens through your repayments and any growth in the property's value over time. At that point, the additional security is no longer required. If property values fall, release can take longer, which is why a clear plan matters from the outset.
Can single parents buy with a 2% deposit?
Eligible single parents and guardians with at least one dependent child may be able to buy with a 2% deposit under the single parent stream of the Australian Government 5% Deposit Scheme, without paying Lenders Mortgage Insurance. Eligibility conditions and property price caps apply, so it is worth confirming the current rules and whether your situation qualifies.
What is negative equity?
Negative equity is when your loan balance is larger than the value of your property. It is a particular risk when buying with little or no deposit, because you start with very little equity, so even a small fall in prices can leave you owing more than the home is worth. This can limit your ability to sell or refinance until values recover.
Should I wait and save instead?
It depends on your circumstances. If your income is stable, your serviceability is strong and you have a guarantor or qualify for a scheme, buying sooner can be reasonable. If you would be borrowing at your maximum with no buffer, or your income is not yet settled, waiting to build a deposit and a buffer usually leads to a more secure purchase.
The Bottom Line
A genuine no deposit home loan is uncommon in Australia, but buying with little of your own saved is possible through a guarantor, a government scheme, a gift or existing equity. Each pathway can bring ownership forward, and each comes with a larger loan, higher costs and more risk, particularly the exposure to negative equity and, where relevant, to a guarantor's property. The approach suits buyers with stable income, strong serviceability and either a secure guarantor or scheme eligibility, ideally with a buffer left after settlement. If those pieces are not in place, building a deposit first is often the sounder move. Weigh the cost and risk against the benefit of buying now, get a clear read on your position, and you can decide on a pathway that puts you in a home you can comfortably hold.