Nov 12, 2024

How to Buy A Second Property With No Deposit?

Own an investment property with 0 savings

Planning to buy one more property aside from your residency? Well, you can buy an investment property or a holiday home in Australia putting in absolutely no money from your pocket. This article lists the 5 most common methods for buying a second property with no deposit, answers common questions, and provides valuable tips.

1. Using Home Equity in Your First Property

Home equity is your property’s current market value. If your property was mortgaged, your home equity is the difference between your property’s current market value and your current loan balance. By taking a home equity loan for your second property, you can basically access a certain percentage of your equity to fund the entire or partial deposit amount of your second mortgage.

Allows you to leverage existing equity without needing additional savings.

Pros

Cons

Home equity loans often have lower interest rates than other loan types.

By increasing your debt, you may experience higher monthly repayments and interest over time.

Allows you to leverage existing equity without needing additional savings.

Pros

Cons

Home equity loans often have lower interest rates than other loan types.

By increasing your debt, you may experience higher monthly repayments and interest over time.

2. Guarantor Loans

A guarantor home loan allows a family member, usually a parent, to use their property as security for your loan. Because it is the guarantor’s property you are keeping as security, you can borrow up to 110% of the property value you are looking at, thus covering your deposit.

2. Guarantor Loans

A guarantor home loan allows a family member, usually a parent, to use their property as security for your loan. Because it is the guarantor’s property you are keeping as security, you can borrow up to 110% of the property value you are looking at, thus covering your deposit.

Can avoid Lender’s Mortgage Insurance (LMI), which typically applies when borrowing over 80% of the property’s value.

Pros

Cons

If you borrow more than 100% of the property price leveraging having a guarantor, not only does it cover your deposit, but you can also put the remaining amount towards other property-related fees, such as title insurance and property gain tax.

If you default on payments, you will put your guarantor’s property ownership at risk.

Can avoid Lender’s Mortgage Insurance (LMI), which typically applies when borrowing over 80% of the property’s value.

Pros

Cons

If you default on payments, you will put your guarantor’s property ownership at risk.

3. Cross-Collateralization

If you have one or more existing properties you own more than 80% of equity, then you can use it/them as security for your second home loan. This way, you will use the equity to pay for your deposit.

Useful for those with one or more existing properties.

Pros

Cons

Requires strategic planning to avoid potential risks, such as reduced future borrowing capacity.

Useful for those with one or more existing properties.

Pros

Cons

Requires strategic planning to avoid potential risks, such as reduced future borrowing capacity.

4. Refinance Cashback paired with Low Deposit Home Loan

If you do not want to consolidate your home loans yet make the most of your existing property, you can look for lenders who are giving better interest rate deals and are giving the most refinance cashback amount. This way, without even having to save, you can get a refinance cashback deal of about $10,000. This amount could be enough to pay for your deposit if you get a low-deposit home loan package that requires a minimum deposit of only 10%.

You do not have to pay any interest on the cashback received

Pros

Cons

The most common refinance amounts received range from $3000 to $5000; bagging a $10,000 cashback offer is rare

You do not have to pay any interest on the cashback received

Pros

Cons

The most common refinance amounts received range from $3000 to $5000; bagging a $10,000 cashback offer is rare

5. Vendor Financing

In some cases, the property seller may offer financial help, such as purchasing the property in installments or a “rent to own” scheme for a certain term.

Ideal choice for those applicants who have very low chances of getting a home loan from both traditional and non-traditional lenders

Pros

Cons

Vendor finance agreements sometimes come with higher interest rates.

You’ll need legal guidance to set up and protect both parties' interests in the agreement.

Ideal choice for those applicants who have very low chances of getting a home loan from both traditional and non-traditional lenders

Pros

Cons

Vendor finance agreements sometimes come with higher interest rates.

You’ll need legal guidance to set up and protect both parties' interests in the agreement.

6. Personal Loan for Deposit

Many lenders allow borrowers to take out a personal loan as a deposit for a second property, depending on their credit history and overall financial situation.

Personal loans are generally quicker to secure than home loans

Pros

Cons

You do not need an existing property to keep as security or use equity from

Personal loans typically come with higher interest rates compared to home equity loans.

Your debt increases which may hamper your credit score if you are unable to manage your debt-to-income ratio.

Personal loans are generally quicker to secure than home loans

Pros

Cons

You do not need an existing property to keep as security or use equity from

Personal loans typically come with higher interest rates compared to home equity loans.

Your debt increases which may hamper your credit score if you are unable to manage your debt-to-income ratio.

Nov 12, 2024

How to Buy A Second Property With No Deposit?

What is the minimum deposit for an investment property in Australia?

The standard deposit for both an owner-occupier and investment property in Australia is 20%, with the minimum deposit requirement for both being as low as 5%.

What is the minimum deposit for purchasing a second property in Australia?

The standard minimum deposit for purchasing a second property in Australia is 10% or no deposit at all.

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This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.