home loan

Can You Borrow 95% of Your Home’s Value?

Most lenders don’t offer no-deposit home loans anymore. The risk attached to them is too high for most. However, you can still access products with a loan to value ratio (LVR) of 95%.

| | 4 minute read

Lenders are no longer willing to take on the risk no-deposit home loans present. However, you may be able to access a loan with an LVR of 95%.

You’ll need to meet several criteria for such loans because lenders are very wary of offering them.

What Criteria Do I Need to Meet?

If you hope to borrow 95% of your property’s value, you must meet the following criteria:

  • Have a completely clear credit history that shows on-time repayments on existing debts over the last six months. Most lenders will refuse 95% loan applications from anybody who has defaults in their credit reports;
  • A strong asset position, which the lender determines based on your income and age;
  • At least six months of employment in your current job, though some exceptions may apply here;
  • A strong enough income to make the repayments on your home loan;
  • Your personal debts must amount to no more than 5% of the value of your property; and
  • You have genuine savings that amount to at least 5% of the property’s value.

Some lenders will also take the property type and location into account. Many are wary of offering 95% loans for rural properties, units in high rise buildings, and unique properties.

There are some lenders who do not offer 95% home loans, even if you meet these criteria. These lenders generally offer loans with lower LVRs due to the risk attached to loans with higher LVRs. We can help you to find lenders who offer 95% of your home’s value.

How Much Do I Need for My Deposit?

Most lenders will ask that you have at least 5% of the home’s value in genuine savings for a deposit, with many requesting 10%. This varies between lenders, plus you may find that the First Home Owner’s Grant (FHOG) may lower the deposit needed.

Those buying their second homes usually need at least 10% of the new home’s value as a deposit. Half of this covers the deposit itself, whereas the rest goes toward other fees associated with buying a house.

These are general guidelines, so you should speak to one of our mortgage brokers if you need more information.

Are There Any Borrowing Limits?

The majority of lenders don’t offer 95% home loans over $800,000. However, some may allow you to borrow up to $1 million, provided your application is strong enough.

You also need to consider Lender’s Mortgage Insurance (LMI) when taking out a 95% loan.

How Much LMI Will I Pay?

We’ve mentioned LMI, so it’s worth expanding on the topic further. LMI on a 95% home loan varies between 1.5% and 5.1%. How much you have to pay will depend on the size of the loan.

Capitalising your LMI places it on top of the loan, which means you pay interest on the fee over time. This also raises your loan’s LVR, though most lenders don’t allow your combined loan and LMI LVR to go beyond 97% of your home’s value.

What Else Do I Need to Know?

Every lender will assess your credit rating to determine your reliability. If you fail their assessments, they won’t approve your home loan application.

With regard to 95% home loans, is often best to work with non-bank lenders. Major lenders are warier of loans with high LVRs, which means you have to meet very strict criteria to access them. Specialist lenders are typically more willing to take on the risk, though you may pay slightly more interest on their loans than you would on loans from a major lender.

You can also access most standard home loan features with 95% loans. These include fixed interest, offset accounts, and professional loan packages.

What to Do Next?

With the right lender, it’s possible to borrow up to 95% of the value of your home. However, you’ll need a strong application to stand any chance of approval. Before starting your home loan application, do the following:

This information is general in nature, and you should always seek professional advice when making financial decisions.

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Alexi Neocleous

With over 20 years experience, Alexi has written extensively a wide cross section of financial topics. These topics range from financial planning, mortgages, property commentary and all points in between.

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