How to buy a home in Perth with a low deposit

What a low deposit means to a lender

A low deposit home loan is one written where your deposit sits below the level at which a lender stops charging lenders mortgage insurance. Where that line falls is a matter of each lender's own credit policy rather than a national rule.

Below it, two things happen at once. The loan becomes more expensive, because the insurance has to be paid for by somebody, and the field of lenders prepared to write it gets narrower.

What tightens once you are under the threshold

• Fewer lenders consider the file at all, and their policies differ more than their advertised rates do
• Some lenders restrict particular postcodes, small apartments or other property types
• Variable income such as overtime, bonus and commission is commonly shaded harder
• Bank statements and account conduct are read more closely
• The valuation carries more weight, because there is less equity absorbing a low one
• Credit history that a larger deposit might have absorbed can become decisive

None of that makes a low deposit loan a bad loan. It makes lender choice the thing that decides the outcome, which is a different problem from the one most buyers think they have.

Lenders mortgage insurance, and who it protects

Lenders mortgage insurance is the most common route to buying with a small deposit, and it is the one people most often misunderstand. It protects the lender if the loan is not repaid and the property sells for less than the debt. You pay for it, and it covers you for nothing.

It exists so that lending below the usual deposit level is possible at all. Without it, plenty of buyers who could comfortably manage the repayments would simply be told no.

The premium varies by lender, by the size of the loan and by how far your deposit sits under the threshold. There is no single figure worth quoting, and any number you find in an article is a number calculated for somebody else's file.

Some lenders waive the insurance for borrowers in particular occupations under their own policy, and the eligible list is set by each lender rather than industry-wide. It is worth having that checked before you assume the premium is unavoidable.

Keystart, the Western Australian Government's own lending initiative, charges no lenders mortgage insurance at all, which is a different thing from waiving it on a case. A premium that is never charged is not a concession you qualify for on top of the loan; it is how that product is built. Whether you qualify for the loan itself is a separate question, and it is covered further down this page.

Genuine savings, and where your deposit came from

Many lenders do not only ask how large your deposit is. They ask where it came from and how long you have had it.

The term for this is genuine savings, and it is a policy requirement rather than a moral judgement. A deposit accumulated steadily over months is treated as evidence that you could meet a repayment; the same sum arriving in a single transfer last week is not.

What lenders commonly do and do not count

• Money saved into your own account over a period, which is the clearest case
• Equity in a property you already own, under most credit policies
• Shares or managed funds held in your own name for a period, under many of them
• A gift from family, commonly accepted as deposit but often not as genuine savings on its own
• Rent paid on time over a period, which some lenders accept in place of savings and others do not
• A first home owner grant, which usually arrives too late in the process to serve as a deposit anyway

If part of your deposit is a gift, expect to be asked for a letter from the person giving it confirming that it is a gift and not a loan. Some lenders also want the funds sitting in your own account for a period before they treat them as yours.

This is the requirement that most often holds up a low deposit purchase, and it is the one buyers tend to find out about last. It is worth asking about early, because the remedy is usually time, and time is what nobody has once an offer is in.

What a family guarantee actually does

A family guarantee, sometimes called a guarantor loan or a family pledge, uses equity in a relative's property as additional security for your loan. It could let you borrow with a smaller cash deposit, and in most structures without the insurance premium.

1. 1

   A relative offers part of their equity

   Usually a parent, and usually a limited slice of the property rather than the whole of it. The guarantee is capped at a set amount, and that cap is the part most families do not realise is a decision rather than a given.

2. 2

   The lender takes security over both properties

   Yours and theirs, to the guaranteed amount. Their property is not sold or transferred, but a mortgage is registered against it, and that restricts what they could do with it while it stands.

3. 3

   You take out one loan

   The loan is yours and the repayments are yours. A guarantor is not a co-borrower and does not own a share of your home; they are liable only if you do not repay, and only up to the guaranteed amount.

4. 4

   The guarantee could be released later

   Once enough equity has built up, many lenders would consider releasing the guarantee on request, generally after a fresh valuation. It is not automatic, and it is subject to the lender's policy at the time.

A guarantee also affects the guarantor's own position. While it stands, a lender assessing them for anything else has to take it into account, which could matter a great deal if they are thinking about moving or borrowing themselves.

The government programs, and why no figures appear here

Three separate kinds of government help touch a low deposit purchase in Western Australia. None of them are decided by a broker or by a lender, and each has its own rules, its own decision-maker and its own way of changing.

• The Australian Government's deposit guarantee scheme, which supports eligible buyers to purchase with a smaller deposit and without mortgage insurance by guaranteeing part of the loan
• Keystart, a Western Australian Government lending initiative for eligible Western Australians who could service a loan but cannot meet a mainstream lender's deposit requirement
• The WA first home owner grant and the first home owner rate of transfer duty, which are administered by RevenueWA and are separate from one another

You do not apply to the Commonwealth for the deposit guarantee. You apply through a participating lender, which assesses you against the scheme's rules and against its own, and either of those could be the one that stops you.

Keystart is a lender in its own right rather than a subsidy, so a Keystart loan is a real loan with real repayments and its own terms. Two of those terms are the point of it: the loans carry no lenders mortgage insurance, and there is no genuine savings requirement, so a deposit could come from a gift or from any other source.

It is an owner-occupier product. You have to live in the home for as long as the Keystart loan runs, and you must not own other property at settlement, which rules it out for anyone buying to rent out or holding on to a home they already have.

Keystart sets its variable rate by reference to the average standard variable rate of the major banks rather than to undercut them. That is the reason it is designed as a transitional route rather than a permanent one, and it is why borrowers commonly refinance to a mainstream lender once equity or income has grown. Whether that move is open to you depends on the lender you would be moving to and its policy at the time.

Eligibility criteria, income limits and property price limits for all of these are set by government, and government changes them. That is why none of them are written on this page, and why an article that does quote them is worth checking against the source before you plan around it.

The WA grant and the duty concession have their own guide at /guides/first-home-owners-grant-wa/, where the figures are dated to the government pages they came from. For the deposit programs, tell us your position and we will check what applies to it before you budget on anything.

What could strengthen a low deposit application

At a small deposit, the parts of your file you do control matter more than they otherwise would. None of the following guarantees an approval, and all of them make a credit assessor's decision easier.

• Close credit card accounts you do not use, and reduce the limits on the ones you keep
• Clear small consumer debts and buy-now-pay-later accounts entirely, rather than part way
• Keep your account conduct clean and explainable for several months, with no dishonours and no gambling
• Keep saving into the same account, so the pattern is visible rather than something you have to argue for
• Avoid new credit applications, each of which leaves a mark on your file
• Have a documented explanation ready for any large or irregular deposit into your accounts
• Budget for transfer duty, settlement costs and inspections separately from the deposit itself

Then have the file assessed against real lender policy before anything is submitted. Low deposit applications are the ones most likely to be declined on a technicality, and several declines in a short window sit on your credit file where the next lender could see them.

How we run that file, and what each route costs against the others, is set out at /home-loans-perth/low-deposit-home-loans/. Everything here is subject to lender approval, to a valuation of the property you choose, and to your circumstances at the time you apply.