No Deposit Investment Loans

Use the equity in your home to buy an investment property with no cash deposit required.  Find out how with Savvy

Last updated on April 21st, 2022 at 10:23 am by Cate Cook

No deposit investment loans

You may not need to have cash in the bank for a deposit if you’re looking to take out a no deposit investment loan.  Find out all about buying a property with no deposit and your options for doing so right here with Savvy.

What are no-deposit property investment loans and how do I get one?

These are loans specifically designed for property investors which use the existing equity in a home as security for a second loan, which is then used to buy an investment property.  These loans can be interest-only investment home loans, for a fixed term and at a fixed interest rate, or they can be standard principal and interest home loans.

If you apply for a home loan to buy an investment property, your lender will fundamentally require two things:

  • that you prove you’re able to afford the loan repayments, and
  • you provide a sufficient deposit or security to make the loan risk worthwhile for the lender

If you’re wanting to buy a second property with no deposit, you’ll have to satisfy your lender on both of these counts.  To prove you’re able to afford the loan repayments, you’ll have to go through the normal home loan application process and provide documentation to prove your income, your outgoings, assets and debts.  The good news is that some lenders will allow you to include the potential rent you’ll receive from renting out your investment property in your income calculations.  Use Savvy’s household budget calculator to record all your income and expenditure information in one handy location before you apply for your investment loan.

The security you provide to the lender should amount to 20% of the price of the property you wish to purchase.  This is because lenders are usually only able to loan up to 80% of the cost of an investment property, which is known as 80% LVR (loan-to-value ratio).  This security can either be in the form of a cash deposit or you can apply for a no deposit investment loan by offering the equity in your home (or another property) as security.  If this is your investment plan, you’ll end up with two separate mortgages over your home, with the second one using the equity you’ve already built up in your home.

What are my options for buying an investment property with no deposit?

Some of the ways you can apply for an investment property loan without a deposit (or low deposit investment loans instead) include:

  • a refinance to a new loan with another lender to take cash out from your usable equity and put it down as an investment property deposit
  • a top-up to your existing loan to provide you with the deposit for a separate investment loan
  • a home equity line of credit – a credit line secured by your home equity which you could use to help purchase your investment property
  • a guarantor loan – which would involve using the equity in a family member’s home as security for your investment property loan, instead of providing a 20% cash deposit. The family member would have to be prepared to make your loan repayments if you were unable to do so to avoid foreclosure on your property.  If your guarantor is prepared to do this, you can purchase your investment property with no deposit of any kind made by you
  • a low deposit investment home loan with Lenders Mortgage Insurance (LMI) – a loan requiring a much smaller deposit of as low as 5%, which can be approved by some lenders, but comes with the added cost of LMI to cover your lender (which can amount to thousands of dollars)

Frequently asked questions about no deposit investment loans in Australia

How do I calculate how much free equity I have in my home?

To find out how much free or usable equity you have in your home, multiply the value of your home by 0.8 to find out how much 80% of your property value is.  Once you’ve found out this value, subtract the current balance of your home loan to give you the usable equity you have in your property.  For example, using a property worth $750,000 and a remaining loan amount of $520,000:

Property value x 0.8 = 80% of the value of your home

750,000 x 0.8 = 600,000

(80% value) – existing home loan = usable equity

$600,000 – $520,000 = $80,000 usable free equity

Should I get an interest-only or a principal and interest loan for my property investment?

This will depend on your personal financial circumstances.  If you’re wishing to use your investment property as a negatively-geared income tax deduction, or are looking to sell within the next five to ten years, you may be better off getting an interest-only investment loan.  However, if your property is positively geared and will make a profit, you’ll likely want to pay it off as quickly as possible, in which case a principal and interest loan with interest-reducing features like an offset account may be your best option.

Do I have to stay with the same lender to get my investment loan?

No – however, it’ll certainly speed up the process and reduce lender fees if you apply to your existing lender for your no deposit investment home loan in Australia.  You will also have a higher chance of getting your investment loan approved if you use the same lender, because some lenders will be reluctant to loan money to borrowers who already have an existing mortgage on a property.  If a second lender does come in, wanting security over a mortgaged property, the two lenders may have to sign a Priority Agreement (also known as a Subordination Agreement), which is a legal agreement stating the first lender has priority rights to be repaid in the event of a loan default.

Will my lender want to get a valuation done when I apply for my no deposit investment loan?

Yes – your lender may well need to get a valuation done on your home before approving your investment loan. This is to ensure that an independent valuer agrees with the property valuation you’ve supplied, so the lender is assured it has verified security in the home. Your lender will arrange this valuation on your behalf and may charge you around $300 to $500 for this service.

Are interest rates for no-deposit investment loans higher than for conventional home loans?

Interest rates for investment loans of all sorts tend to be slightly higher than for standard home loans. However, there are still very competitive home loan interest rates in the market.  Compare home loans with Savvy to find a loan that has a very low interest rate but all the loan features you need to get your mortgage paid off sooner and save thousands.