How To Buy an Investment Property with a Small Deposit

Saving for a deposit to buy an investment property can feel overwhelming. Many first-time buyers feel like they’re chasing a fast-moving train: the more they save, the higher property prices climb.

In today’s market, many potential investors miss out on opportunities due to deposit requirements. With stricter lending regulations, lenders typically require buyers to contribute a certain percentage toward the total purchase price.

Most lenders require at least 5–10% of the deposit in genuine savings, while some may ask for 20% for an investment loan. This is why many investors consult mortgage brokers to compare loan options and secure the best deal.

However, there are ways to purchase property without needing a large deposit. Let’s explore how you can buy an investment property with a small deposit.

How low deposit home loans work

Low deposit home loans are often sought by first-time buyers with minimal savings or investors looking to maximise the benefits of negative gearing.

In some cases, buyers can borrow up to 95% or even 97% of the property’s value. However, lenders mitigate their risk by requiring Lenders Mortgage Insurance (LMI), which can be costly.

It’s important to note that LMI does not protect the borrower, it only covers the lender in case of default. Additionally, loans with smaller deposits often come with higher interest rates compared to standard loans.

Options for buying property without a large deposit

Guarantor loan
If your parents own a property in Australia, they may be able to provide a limited guarantee on your mortgage. However, not all banks approve guarantor loans for investment properties, and some may not accept a parent's home as security, particularly if they are retired or living in the property.

Consulting a mortgage broker can help identify which banks offer guarantor loans for investment properties.

Benefits of guarantor loans include:

• No savings required

• The full purchase amount, including stamp duty and associated costs, can be borrowed

• No LMI required

• Suitable for both investors and owner-occupiers

• Often comes with lower interest rates

Home equity
If you already own property, you may be able to refinance and use equity as a deposit for your investment purchase.

Different banks have varying valuation methods, so working with a mortgage broker can help you secure the best outcome. If you have enough equity, you may not need any savings at all. However, a clean credit history is essential for this option.

Superannuation
Many people overlook the potential of their superannuation savings when considering property investment. Under certain conditions, you can use your super to invest in property by setting up a Self-Managed Super Fund (SMSF).

Through an SMSF, you may be able to borrow up to 80% of the property’s value, with the super fund covering the remainder, creating a no-deposit loan structure.

Seeking independent legal and financial advice is crucial before pursuing this option.

Gifts
Some lenders accept cash gifts from close family members as a substitute for genuine savings. The gift must come from immediate family and be non-repayable.

A mortgage broker can help ensure the gift meets the lender’s requirements.

Low deposit investment loans can help you enter the property market sooner without needing to save a large deposit. These loans often come with features like redraw facilities and additional repayments.

However, lending standards are more stringent than ever, and securing a low-deposit loan can be challenging. Lenders will closely review your financial history, so it’s important to meet all requirements for approval.

If you're self-employed or have a lower income, getting approved may be more difficult, but this varies between lenders. Working with a mortgage broker can help you navigate your options and make informed investment decisions.