95% Home Loans
Do you want to purchase a home sooner? You can with a deposit as low as 5% in Australia. Find out how you can.
Fact checked
It’s possible to get 95% home loans in Australia. That means you can borrow up to 95% of your property’s value as a low deposit home loan. This article explains how you can do that.
How do 95% home loans differ from standard home loans?
The fundamental difference is the deposit amount you need to provide. Standard mortgages in Australia usually require a deposit of at least 20% of the value of your home. 95% home loans on the other hand only require you to provide a deposit of 5%.
The table below shows you the difference in deposit requirements for a range of home values.
| Home value | Minimum deposit required for a standard home loan | Deposit required for a 95% home loan |
|---|---|---|
|
$350,000 |
$70,000 |
$17,500 |
|
$450,000 |
$90,000 |
$22,500 |
|
$550,000 |
$110,000 |
$27,500 |
|
$650,000 |
$130,000 |
$32,500 |
|
$750,000 |
$150,000 |
$37,500 |
|
$850,000 |
$170,000 |
$42,500 |
As you can see, the lower deposit requirement makes a big difference.
However, lenders view 95% home loans as higher risk. They usually have higher interest rates than standard mortgages. They also usually require you to take out lenders’ mortgage insurance (LMI). You don’t need LMI with a standard home loan.
What is (LMI)?
LMI is insurance for lenders that borrowers pay for. If you default on your mortgage repayments, LMI covers the lender. Unlike other forms of insurance (like car or income protection), it is a one-off cost.
However, it’s a significant one-off cost. For example, it can be well over $10,000 on a mortgage of $500,000. The exact amount depends on the amount you borrow, the LMI provider and your loan-to-value ratio (LVR).
Your LVR is your mortgage expressed as a percentage of your home’s value. Your LVR on a 95% home loan is 95%.
The cost of LMI is usually added to the amount you borrow. Although this means that you don’t have to pay LMI upfront, you will pay interest on its cost. It’s important to understand that.
Are 95% home loans easy to get?
They have generally become more difficult to get in Australia in recent years. Many lenders have become more risk averse for two major reasons.
- Tighter lending restrictions were introduced after the global financial crisis (GFC) in the National Consumer Credit Protection Act.
- The Australian economy went into recession in 2020.
Not all lenders offer 95% home loans. However, it’s still possible to get them from selected banks, credit unions, building societies and other non-bank lenders.
Can first home buyers get 95% home loans?
Yes, if you meet a lender’s criteria, you can get your application approved.
However, if you’re buying your first home, it’s important to be aware of government schemes that can boost your deposit. They include the First Home Owner Grant (FHOG) and the First Home Loan Deposit Scheme (FHLDS).
All Australian States and Territories except the ACT offer the FHOG. However, the amounts and eligibility criteria vary. You can use the FHOG for your deposit.
The FHLDS helps eligible first home buyers across Australia to avoid the cost of LMI. If you have a 5% deposit, the government provides a lender guarantee of 15% of the value of your home. This reduces the lender’s risk and removes the need for LMI.
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Simple steps before applying for a 95% home loan
Start saving
Lenders like to see evidence of genuine savings. It gives them confidence that you’ll make your repayments compared to a non-genuine home loan application. You should be able to demonstrate savings in your bank account transactions for at least three months prior to your application.
Check your credit score
Lenders will assess your credit score when you make your application. You’ll find it easier to get approved if you have a good credit score. You can get a good credit score by paying all your bills on time. This includes rent, mobile phone plans and utility services like gas and electricity.
Eliminate or minimise any other debts you have
The less debt you have, the more likely it is that you’ll be able to afford your repayments.
Check the loan amount you can afford to repay
You can use our home loan calculator to check what your repayments would be for different borrowing amounts, interest rates and terms.
You can also use our borrowing power calculator to work out how much you may be able to borrow.
Top tips for getting the best 95% home loan
Shop around
The Australian mortgage market is highly competitive. Make sure you shop around to get the best finance for your specific needs. Use the services of a mortgage broker if you don’t have the time or knowledge to do it yourself.
Shortlist loans with the features you need
Think about whether you will need optional features like offset accounts and redraw facilities. There are usually fees for these features, so only include them if you’ll use them.
Choose the loan with the lowest comparison rate
The comparison rate includes the cost of interest plus any other fees or charges. Lenders in Australia are legally required to tell you the comparison rate before you take out a loan.
