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106% Home Loans

A close look at options available to get finance to cover all the costs of buying a property, right here with Savvy.

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, updated on August 8th, 2023       

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There are many additional costs involved in buying a property over and above the purchase price.  Stamp duty alone can amount to tens of thousands of dollars. The idea of 106% home loans is to cover all the costs related to buying a property, so the borrower doesn’t need any savings for the deposit or stamp duty.  Savvy looks at 106% mortgages and the alternatives available to borrowers with a very small deposit (or even no deposit at all) so you understand your options.

What are 106% home loans and do they still exist?

Before the Global Financial Crisis (GFC) in 2007 and 2008, some banks were prepared to loan the full cost of a property purchase, including the amount typically required for a deposit, plus the cost of stamp duty.  These were known as 106% home loans because they covered the full purchase price of a property plus an extra 6% to cover additional costs. 

However, since the GFC, banks no longer lend the full amount of a property’s value plus the cost of stamp duty, so borrowers have had to find other means to finance their property purchase.  This has led to the guarantor home loan with no deposit rising in popularity amongst first homebuyers.  With a guarantor home loan, you can not only contribute no deposit but also borrow more than the purchase price, potentially as much as 110% in some cases.

If you agree to be a home loan guarantor in Australia, you may have to be prepared to take on the full cost of the guaranteed loan if your relative becomes unable to make the loan repayments.  However, some lenders do offer limited guarantor loans, which specify the dollar amount the relative is prepared to be liable for.  As part of the agreement, a guarantor uses some of their home equity as security for the loan, meaning that it’ll be secured by two properties instead of one (known as cross collateralisation or securitisation).

Most lenders ask that a guarantor be a close relative, such as a parent, grandparent or sibling.  However, some lenders have less strict criteria for guarantors and will accept more distant relatives or even unrelated friends as guarantors.

What additional expenses are there when buying a property?

The additional expenses you’ll need to budget for over and above the purchase price of your property include:

  • Lenders Mortgage Insurance (LMI) – which can amount to thousands of dollars depending on the cost of your property (but doesn’t apply when using a guarantor)
  • stamp duty – which varies depending on the state in which you live (you can use Savvy’s stamp duty calculator to find out how much you may have to pay in stamp duty, depending on the state in which you live)
  • conveyancer's fees – which start at $650 up to $2,000 or more, depending on how involved your property settlement is
  • legal charges, including title registration fees – allow up to $1,000
  • furniture moving – which can be anywhere from $1,000 to $5,000
  • home insurance for your new property – which can often be paid monthly
  • the cost of connecting utilities, phone and internet to your new property

What are my other loan options if I have a small or no cash deposit and I’m buying for the first time?

Some of the other options you have available to get a home loan if you only have a small deposit include:

  • applying for a 90% or 95% home loan and paying LMI, meaning you only need to find 5% or 10% of the property purchase price for the deposit
  • asking relatives for a gift or a loan to assist you with the cost of your home loan deposit and stamp duty
  • taking out a personal loan to help pay for the deposit and additional costs associated with buying a property

What are my loan options if I want to buy an investment property with no cash deposit?

If you’re looking for ways to finance your investment property with no deposit, your options include all of the above, plus using the existing equity in your home as the deposit for your investment property purchase.  This means your lender will use both your investment property and your existing home as security for your loan (another form of cross collateralisation or securitisation), as is the case with a guarantor loan. You can do this by:

  • refinancing your existing loan to a new one and including a cash-out sum, which you can then use to pay the deposit and stamp duty on your investment property. Find out how much stamp duty you may be eligible for with Savvy's Stamp Duty Calculator.
  • taking out a top-up loan on your existing mortgage to pay the deposit to help purchase an investment property (in which case your home may again act as security for your investment property)

Savvy can help you compare loans and their interest rates, so you have the most up-to-date financial information to help you make the best possible loan decision.

What other assistance is available if I’m a first-time buyer and I don’t have a large deposit?

There are many government assistance schemes available for first homebuyers which can help with the cost of buying a home for the first time: 

  • the First Home Owner Grant, which is administered by the states, offers cash grants of up to $15,000 to assist with the cost of stamp duty
  • the First Home Loan Deposit Scheme offers a government deposit guarantee of up to 15%, meaning you only have to find 5% of the deposit for a first home
  • other state initiatives offer concessions and reductions on the cost of stamp duty to make the price of buying a home for the first time more affordable

More of your questions about 106% home loans

Is it better to provide a deposit than take out a 106% home loan?

Yes – you can save yourself on the cost of paying LMI, as well as the hassle and stress of enlisting a guarantor, if you’re able to provide a deposit of at least 10% of the cost of the property you wish to purchase.  The higher the percentage deposit you’re able to provide, the better your chances of being offered the lowest possible home loan rates.  The standard deposit required to avoid LMI is 20% of the price of the property you wish to purchase

Is it a good idea to take out a personal loan to cover the cost of my home deposit?

Personal loans, particularly unsecured personal loans, can come with high interest rates (often much higher than the interest rate you could expect to pay on your home loan).  Therefore, it isn’t the best idea to take out a personal loan if you can avoid it.  However, if you do have some deposit but not quite sufficient to avoid paying LMI, taking out a smaller personal loan could possibly be cheaper than the full cost of LMI.  You may be able to get an introductory rate home loan so your repayments are lower for the first year or two, enabling you to pay off your personal loan first.

Can I remove a guarantor from my home loan in Australia?

Yes – but this will likely involve refinancing your home loan and providing additional security from another source, either from an increased deposit (if you’ve had time to save up more for your deposit) or from the equity you now have in your home (if you’ve paid off a chunk of your mortgage or house prices have risen since you took out the guarantor loan).  If your financial situation has changed dramatically to the point that you now have substantial home loan equity, your lender may agree to remove your home loan guarantor with no refinance costs involved.

What information will a guarantor have to provide to a lender?

A guarantor will have to provide details of their financial position, including proof of the size of their own mortgage, the value of their property and how many other financial commitments they may have.  This will assist your lender in working out how much free equity they may have in their property which you can use as security for your loan.  Your relative will also have to provide information to your lender to be able to check their credit report if they offer to stand as a personal guarantor for your loan.

If I link my two properties, using one as security for the other, what happens if I want to sell one of my properties?

If you use the equity you have in one property as security for another, the two properties become linked together, so you won’t be able to sell one without refinancing your loan or providing additional security.  However, it may be possible to remove the security of one property against another if sufficient time has passed.  It’s possible that in the intervening period, you’ve either paid down your home loan or house prices have risen and increased your available equity.  This may mean that your lender no longer requires your residential property as security for your investment property.

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