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5 pathways to home ownership for first-time buyers

Don’t have a 20 per cent deposit? Here are five ways you can still get onto the property ladder, according to an expert.

People at property auction. Aerial shot of houses in Australia. First home buyers.
A mortgage broker shares five pathways for first-home buyers. (Source: Getty)

If you’re saving up for a home deposit, you might be aiming for a 20 per cent deposit to get your foot in the door.

But, according to Two Red Shoes mortgage broker Brett Sutton, you may be able to purchase a property with a smaller deposit and avoid paying the hefty lenders mortgage insurance (LMI) that’s usually charged on deposits under 20 per cent.

Here are five ways to do it.

1. Guarantors

If you have a family member who is willing to go guarantor on your loan, this could help you avoid paying LMI and give you access to better interest rates. A guarantor uses the available equity in their own property to top up your deposit, so it can be risky for them if you fall behind on your repayments.


Once you have 10 per cent equity in your home, Sutton said you could refinance and remove the guarantor from your loan. However, ideally you would wait until you had more built up.

“Ideally, have 20 per cent equity to avoid lender mortgage insurance and there is no need to refinance to just remove the guarantor,” Sutton said.

“It does have some additional costs, such as that two valuations are required and some lenders ask that the guarantors seek legal advice.”

2. First Home Guarantee Scheme

This is a federal government scheme that lets eligible first-home buyers buy their first home with a deposit of as little as 5 per cent, without paying LMI.

“First-home buyers require a 5 per cent deposit plus costs, including conveyancer and stamp duty,” Sutton said.

Eligibility for the scheme is income tested, Sutton said, and there are also price caps that apply based on the location you are buying in. The scheme has 35,000 places per financial year.

3. NSW government shared-equity scheme

If you live in NSW, you may be eligible for the state government’s shared-equity scheme. Under the scheme, the government owns a portion of your property - up to 40 per cent for new homes and 30 per cent for existing homes. You only need a 2 per cent deposit.

“The government owns a share in your property, which can mean you are able to own property for more than you could afford to borrow on your own,” Sutton explained.

To be eligible, you need to be either a single parent caring for a dependent child or children, a single person aged 50 years or older, or a first-home buyer who is employed as a key worker (teachers, early childhood educators, nurses, midwives, police officers and paramedics).

4. LMI waivers

Some lenders also offer LMI waivers for applicants who work in specific occupations.

“Many university-qualified healthcare workers, solicitors and accountants can qualify to pay no mortgage insurance between 80-90 per cent LVR (loan-value ratio),” Sutton said.

That means you would need a deposit of between 10 and 20 per cent.

5. Gifted funds

If you are lucky enough to get help from the ‘bank of mum and dad’, this could boost your deposit and avoid LMI.

“Families can give money to cover the difference between borrowing capacity and purchase price,” Sutton said.

Borrowers would still need to show evidence of “genuine savings” and could do this through their history of rental payments, Sutton said.

Your family member would also need to sign a statutory declaration, stating that it was a non-refundable gift.

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