Can You Use a Personal Loan as a Home Deposit in Australia?

Can a personal loan count towards your home deposit?

Learn how Australian lenders assess borrowed deposits, genuine savings, rental history and the Australian Government 5% Deposit Scheme.

A personal loan may put money in your bank account, but that does not necessarily make it an acceptable home deposit.

Australian lenders look at more than whether you have enough cash available on settlement day. They may also assess where the money came from, how long you have held it, whether it qualifies as genuine savings and whether the repayments on any borrowed funds affect your borrowing capacity.

This becomes especially important for first-home buyers hoping to purchase through the Australian Government 5% Deposit Scheme.

Can a personal loan count as genuine savings?

In most cases, no.

Among the 22 genuine savings policies reviewed in our lender policy reference, at least 13 specifically exclude personal loans, unsecured borrowings or other borrowed funds from being treated as genuine savings.

Examples include policies from:

• Macquarie
• Westpac
• Bankwest
• ANZ
• Commonwealth Bank
• MyState
• People First Bank
• ME Bank
• ING
• St.George
• Gateway Bank
• Resimac
• Teachers Mutual Bank

The wording differs between lenders, but the underlying principle is consistent. Genuine savings are intended to demonstrate that the borrower has accumulated and retained their own money over time.

A personal loan demonstrates access to credit rather than a history of saving.

Some lenders may still allow borrowed funds to form part of the overall money available to complete a purchase under a standard home loan application. That is separate from treating the money as genuine savings. The personal loan would also be included as a liability, with its repayments reducing the applicant’s borrowing capacity.

Can rental history replace genuine savings?

Some lenders allow an established rental history to help satisfy their genuine savings requirements.

Within the policies reviewed, at least eight lenders clearly provide a pathway for eligible borrowers to use rental payments or a rental ledger as evidence of savings behaviour. These policies include different conditions around:

• how long the applicant has been renting;
• whether the property is managed by a licensed real estate agent;
• whether payments have been made on time;
• the amount of rent compared with the required deposit;
• whether the applicant is a first home buyer; and
• whether the remaining purchase funds come from an acceptable source.

For example, some lender policies require at least three months of satisfactory rental history. Others require six months. One policy allows a rental repayment history covering at least 90 days where the rent paid during that period is equivalent to at least 5% of the purchase price.

A rental ledger may demonstrate that someone can consistently meet a significant housing expense. It does not automatically convert borrowed money into genuine savings.

Can you use a personal loan with the 5% Deposit Scheme?

The Australian Government 5% Deposit Scheme allows eligible first home buyers to purchase with a minimum 5% deposit. Eligible single parents and legal guardians may be able to purchase with a minimum 2% deposit. The government provides a guarantee to the participating lender, which can allow the borrower to avoid lenders mortgage insurance.

Applicants must still satisfy the participating lender’s credit policy, including its requirements for income, expenses, liabilities, credit conduct and the source of the deposit.

The minimum required contribution generally needs to be genuinely saved. A personal loan would therefore not normally replace the minimum 5% or 2% contribution.

A rental ledger may help an eligible borrower meet a participating lender’s genuine savings policy, but the buyer would still need an acceptable source for the actual deposit funds.

What about purchase costs?

The minimum deposit is only one part of the money required to complete a purchase.

Depending on the property, state or territory and the buyer’s eligibility for concessions, additional costs can include:

• stamp duty;
• conveyancing and legal fees;
• building and pest inspections;
• registration and transfer fees;
• lender fees;
• adjustments for council rates or water; and
• a financial buffer after settlement.

Government concessions or grants may reduce the amount required, but they do not necessarily remove every cost.

A gift from an immediate family member may be acceptable to some lenders, although the lender may ask for a statutory declaration or gift letter confirming that the money does not need to be repaid.

Money borrowed under a personal loan will usually need to be disclosed and included in servicing, even where it is not being relied on as genuine savings.

Example: a buyer with a rental ledger but less than 5% saved

Consider a first home buyer purchasing for $600,000.

A 5% contribution would be $30,000, before allowing for purchase costs.

The buyer has:

• $20,000 in their own savings;
• a satisfactory rental ledger;
• $10,000 available through a proposed personal loan; and
• additional money needed for legal and settlement costs.

A lender that accepts rental history may be satisfied with the buyer’s demonstrated savings behaviour. That does not mean the lender will treat the $10,000 personal loan as part of the buyer’s required genuine contribution.

The personal loan may also reduce borrowing capacity. A relatively small unsecured loan can have a noticeable servicing impact because personal loans generally have shorter repayment terms than home loans.

The buyer may instead need to save the difference, obtain an acceptable non-repayable gift, reduce the purchase price or consider another approved source of funds.

Does a longer settlement or probate period help?

A delayed sale, including a property being sold by a deceased estate, can give prospective buyers more time to save.

It does not change the participating lender’s deposit rules.

The executor must also have authority to sell the property, and the sale contract and settlement timing should be reviewed by the buyer’s conveyancer or solicitor. A buyer should avoid relying on an informal agreement with beneficiaries or family members before the estate is legally able to enter the transaction.

What evidence may be required?

A lender may ask for:

• three to six months of savings account statements;
• a current rental ledger;
• evidence of rent paid from the applicant’s bank account;
• a lease or tenancy agreement;
• evidence of grants or concessions;
• a gift letter or statutory declaration;
• evidence of the source of any large deposits;
• personal loan statements; and
• evidence showing enough money to complete the purchase.

Moving borrowed money into a savings account and holding it there does not necessarily solve the issue. Several lenders trace the original source of the funds, even where they have remained in the account for several months.

The main point

A personal loan will not usually satisfy genuine savings requirements or replace the minimum contribution required under the Australian Government 5% Deposit Scheme.

Rental history can help with some lenders, particularly where the applicant has demonstrated consistent rent payments but has not held all their savings for the required period. It does not remove the need for an acceptable source of deposit funds.

The position depends on the applicant’s rental history, current savings, liabilities, purchase costs and the participating lender’s policy at the time of application.