How Much Deposit Do You Really Need?

One of the most persistent myths in property buying is that you need a 20% deposit to buy a home. While saving 20% of the purchase price does come with significant advantages — namely avoiding Lenders Mortgage Insurance (LMI) — it is by no means a requirement. Many buyers successfully purchase their first home with far less.

On a $600,000 property, a 20% deposit would be $120,000. For many first home buyers, especially those in expensive capital city markets, saving that amount while also paying rent can take many years. During that time, property prices may continue to rise, meaning the deposit target keeps moving further away. This is sometimes referred to as the "deposit gap" and it is one of the biggest barriers to home ownership.

The reality is that most lenders will approve home loans with a deposit as low as 5% of the purchase price, and some will go as low as 2-3% in certain circumstances. The trade-off is that you will need to pay LMI, which can add thousands or even tens of thousands of dollars to your total borrowing costs. But for many buyers, paying LMI and entering the market sooner is a better financial outcome than waiting years to save a full 20%.

The right deposit amount for you depends on your personal circumstances, the property market you are buying in, and how comfortable you are with a larger loan. There is no single right answer, but understanding all your options allows you to make an informed decision rather than waiting unnecessarily.

Lenders Mortgage Insurance (LMI) is a one-off insurance premium that protects the lender — not you — in the event that you default on your home loan and the sale of the property does not cover the outstanding debt. Despite protecting the bank, the cost is passed on to the borrower. LMI is required when you borrow more than 80% of the property's value, known as a loan-to-value ratio (LVR) above 80%.

The cost of LMI varies depending on the size of your deposit, the loan amount, and the LMI provider (known as LMI in Australia and New Zealand, PMI — Private Mortgage Insurance — in the USA, or CMHC insurance in Canada). As a rough guide, LMI on a $500,000 loan with a 10% deposit might cost approximately $8,000 to $10,000, while the same loan with only a 5% deposit could cost $15,000 to $20,000 or more. The smaller your deposit, the higher the LMI premium.

LMI can be paid upfront as a lump sum at settlement, or in most cases it can be capitalised (added to your loan). If you capitalise the LMI, you will pay interest on it over the life of the loan, making the total cost even higher. However, capitalising is the most common approach as most buyers would rather preserve their cash.

Some lenders offer LMI waivers for certain professionals — typically doctors, lawyers, accountants, and other high-income earners — even with deposits below 20%. If you work in one of these professions, ask your mortgage broker about professional packages that could save you thousands.

If you are keen to enter the market as soon as possible, understanding the minimum deposit options available is crucial. The minimum deposit you need depends on the lender, the type of property, and whether you are eligible for any government schemes.

Each option has its own trade-offs. A 5% deposit with LMI gets you in quickly but increases your total loan cost. The Home Guarantee Scheme avoids LMI but has limited places and eligibility criteria. A guarantor loan avoids both LMI and the need for a large deposit, but puts a family member's property at risk.

Regardless of the deposit amount, lenders will also want to see that you have "genuine savings." This typically means savings that have been accumulated gradually over at least three months in your own bank account. Gifts from family can sometimes be used, but lenders will scrutinise the source of your deposit carefully.

A guarantor loan is a powerful tool that allows a family member — usually a parent — to use the equity in their own property as additional security for your home loan. This effectively allows you to borrow up to 100% of the purchase price plus costs, without paying any LMI. For buyers who have stable income but limited savings, this can be a game-changer.

Here is how it works: your parent provides a limited guarantee, typically covering 20% of the property value. Their property is used as security for that portion of the loan only. Critically, your parent does not hand over cash and they are not liable for your entire loan — only the guaranteed portion. Most lenders structure the loan into two splits: an 80% portion secured against your property, and a 20% portion secured against both properties.

Once you have paid down enough of the loan to bring your LVR below 80% — through repayments, property value increases, or a combination of both — the guarantee can be released. At that point, your parent's property is no longer connected to your loan in any way. Most borrowers aim to release the guarantee within two to five years.

Not all guarantor arrangements are created equal. Some lenders are more generous than others with the amount they will lend under a guarantor structure, and the process for releasing the guarantee varies. A mortgage broker can compare options across multiple lenders to find the most favourable terms for both you and your guarantor.

If you have decided to save a larger deposit, there are several strategies that can accelerate the process. Small changes across multiple areas of your finances, applied consistently over time, can compound into significant savings much faster than you might expect.

The First Home Super Saver Scheme (FHSSS) is one of the most effective tools available to first home buyers (Australia-specific). By making voluntary concessional (pre-tax) contributions to your super fund, you benefit from the lower 15% super tax rate rather than your marginal tax rate. When you are ready to buy, you can withdraw these voluntary contributions (plus deemed earnings) to use as part of your deposit. The maximum you can withdraw is $50,000 per person plus deemed earnings. For a couple, that is $100,000 in voluntary contributions, potentially boosted by several thousand dollars in deemed earnings.

In other countries, similar tax-advantaged savings vehicles exist — such as the First Home Savings Account (FHSA) in Canada, Lifetime ISA (LISA) in the UK, or the IRA first-time homebuyer withdrawal in the USA.

Beyond the FHSSS, consider opening a high-interest savings account dedicated solely to your deposit. Automate your contributions so that a fixed amount is transferred on pay day, before you have a chance to spend it. Track your progress monthly and celebrate milestones along the way — saving for a deposit is a marathon, not a sprint.

• Use the FHSSS to save up to $50,000 per person in a tax-effective way
• Automate savings transfers on payday so your deposit grows before you can spend
• Review and reduce discretionary spending — subscriptions, dining out, and lifestyle costs add up
• Consider a side income or overtime to boost your savings rate in the final stretch
• Ask your bank about bonus saver accounts with higher rates for consistent monthly deposits

A common mistake first home buyers make is focusing solely on the deposit without adequately budgeting for the upfront costs of purchasing a property. These costs sit on top of your deposit and can amount to 3-5% of the purchase price for first home buyers (or more if you are not eligible for stamp duty concessions).

Stamp duty is typically the largest upfront cost. For established homes in states where first home buyer concessions do not apply, stamp duty can range from $10,000 to $40,000 or more depending on the purchase price and state. Legal and conveyancing fees usually cost between $1,500 and $3,000. Building and pest inspections cost $400 to $800. Loan application fees can range from $0 to $600, and registration and transfer fees add another few hundred dollars.

On a $600,000 property in a state with no first home buyer stamp duty concession, your upfront costs might look something like this: stamp duty $22,000, conveyancing $2,000, building and pest inspection $600, loan fees $400, registration fees $300, and moving costs $1,500. That is approximately $27,000 on top of your deposit.

The practical implication is that if you are saving a 10% deposit on a $600,000 home ($60,000), you may actually need $80,000 to $90,000 in total savings to cover the deposit plus upfront costs. Plan for this from the outset so you are not caught short at settlement time.

Read our detailed guide on hidden costs of buying a home

One of the hardest decisions for first home buyers is knowing when to stop saving and take the plunge. The perfectionist in you may want to save 20% or more, but in a rising market, waiting too long can actually put you further behind. This is the opportunity cost of renting while you save.

Consider this scenario: you are saving for a $600,000 property and currently have a 10% deposit ($60,000). You could wait another two years to save the full 20% ($120,000) and avoid LMI. But if property prices grow by 5% per year during that time, the same property will cost $661,500 by the time you are ready. Your 20% deposit target has now jumped from $120,000 to $132,300, and you have paid an additional $50,000 or more in rent. In this scenario, paying $10,000 in LMI and buying now could leave you tens of thousands of dollars better off in the long run.

Of course, the opposite scenario is also possible. If property prices fall, waiting and saving more could mean you buy a cheaper property with more equity from day one. Nobody can predict property markets with certainty, which is why the decision should be based on your personal financial readiness rather than trying to time the market.

Use our calculator to test different deposit scenarios and see how your repayments change based on the amount you put down.

The deposit is just one piece of the home buying puzzle, but it is the piece that stops most buyers from getting started. By understanding that you do not need 20%, exploring government schemes and guarantor options, and using tools like the FHSSS, you can get onto the property ladder much sooner than you think.

Talk to a mortgage broker about your options — they can model different deposit scenarios, compare LMI costs across lenders, and help you find the most cost-effective path into your first home. Many brokers offer a free initial consultation, and their service is typically paid for by the lender at no cost to you.

Read our complete first home buyer guide for a full walkthrough of every step in the buying process.