Saving for your first home means giving up your daily coffee, smashed avocado for brunch and yearly holiday to scrape together that hard to bank 20% deposit, right?

Well, that’s not entirely true…

While saving for your first home requires young Australians to make sacrifices, there are several ways to bypass a large deposit when buying a home.

If this revelation comes as a shock to you – you’re not alone. A recent CoreLogic survey revealed that 58% of Australians are unaware that they are able to buy a home with less than a 20% deposit.

If you’re one of the 58%, you may be asking how? The fact is there’s multiple ways of doing it. Here’s a simple summary.

Lenders Mortgage Insurance (LMI)

Most mainstream lenders will allow you to borrow up to 95% of the property, meaning you only require a 5% deposit. However, it comes with a catch.

If you have less than a 20% deposit when borrowing with a mainstream lender you are usually required to take out Lenders Mortgage Insurance (LMI). LMI protects your lender in the event that you default on your loan.

LMI is calculated as a percentage of the loan amount and is also based on the size of your deposit. For example, if you have a 5% deposit on a $430,000 property you will need to pay $14,980.51 in LMI.

LMI can be added to your loan amount and paid off over the life of the loan. While LMI allows you to get into your home sooner and without that elusive 20% deposit – it can add thousands of dollars to your loan.

Look for a low deposit loan

While they were very common 10-15 years ago, low deposit loans are a rarity these days.

However, some lenders still offer low deposit home loans, including HomeStart Finance where home buyers can get started with as little as a 3% deposit. This equates to just $12,900 deposit for a $430,000 property.

The other benefit of accessing a loan through HomeStart is it doesn’t charge LMI, but a Loan Provision Charge (LPC) instead, which is significantly less than a mainstream lender’s LMI.

Using the example of a $430,000 property, a home buyer with a 5% deposit will pay more than $14,000 in LMI. Whereas, buying with a 3% deposit through HomeStart on the same priced property the LPC is dramatically lower at just $1970.

Ask your parents to go guarantor

Even with zero deposit you can get into your own home… if you ask your parents to be the guarantor. A guarantor home loan requires your parent to put up a property they own (or have equity in) as security.

This allows the first time buyer to borrow up to 107% of the purchase price of their home – covering the deposit, and other government and lender fees and charges. In this case you also avoid paying LMI.

However, the decision for parents to go guarantor shouldn’t be made lightly. If, as a first home buyer, you default on your payments, your parents assets are on the line for the portion they have guaranteed. The lender could allocate some of your parent’s income into repaying your loan, or in the worst case scenario your parents could lose their home.

This option can also become extremely messy should you buy with a partner, and the relationship breaks down.

There’s also a matter of fairness for your parents should they have multiple children – can they afford to offer the same support to all?

Unexpected funds

While we all dream of winning a jackpot, the likelihood of it actually happening is extremely low…in fact, almost impossible.

However, sometimes you do come across ‘unexpected funds’ in the form of a gift from your family, or when a relative passes and they leave you an inheritance.

If you receive a gift or inheritance and choose to use it for your deposit, you may need to prove it is a non-refundable payment. This can be done by providing a letter from the executor confirming the amount, when it was deposited to you as the beneficiary and that it was deposited into an account under your name.

Some lenders also require you to hold the funds in a bank account for three months before you can apply for a mortgage.
Turning to the ‘bank of mum and dad’ is also becoming increasingly common for home buyers, with Digital Finance Analytics revealing that from October to December 2016, 54 per cent of first home buyers received financial help from their parents.

However, like guarantor loans, financial experts warn that if parents lend large amounts of money to their children they could experience financial stress during their retirement, so head down this path with extreme caution.

Take advantage of government grants

The final way that you can reduce the amount of money you need to save for a deposit is to access government grants.

Depending on the type of home you are planning to purchase you may have access to grants that offer lump sums to boost your deposit. The South Australian Government currently offers grants of up to $15,000 on homes that are newly constructed.