How much deposit do you really need?

Why everyone talks about 20%

A 20% deposit generally produces an 80% loan-to-value ratio, commonly called an LVR. At that level, many borrowers can avoid lenders mortgage insurance (LMI), although lending policy and eligibility still apply.

LMI protects the lender—not the borrower—if the loan cannot be repaid and the property sale does not clear the debt. A deposit below 20% can still be workable, but LMI or another risk fee may apply and the choice of lender may narrow.

Buying with less than 20%

Some lenders accept smaller deposits. Eligible first home buyers may also use the Australian Government 5% Deposit Scheme, while eligible single parents or legal guardians may be able to buy with a minimum 2% deposit. Under the current scheme, the Government provides a guarantee to the participating lender and eligible buyers do not pay LMI.

The scheme still has eligibility rules, property price caps and ongoing obligations. The Government guarantee is not a cash contribution, and the buyer remains responsible for the loan, repayments and purchasing costs. Approval remains subject to a participating lender’s assessment.

Your usable deposit is not your entire savings balance

Before setting a purchase price, separate the money required for the deposit from the other amounts that may be due before or at settlement.

• Transfer duty and any applicable concessions in your state or territory
• Conveyancing or legal fees, searches and registration charges
• Building and pest inspections, valuation costs or loan fees where applicable
• Adjustments for council rates, water and body corporate charges
• Moving costs, immediate repairs and an emergency cash buffer

A larger deposit can help—but waiting has a trade-off

A larger deposit can reduce the loan amount, repayments and interest, and may improve pricing or lender choice. It can also lower the risk of having very little equity if property values fall.

But saving for longer is not automatically the right answer. The decision should compare the likely benefit of a larger deposit with your rent, timeframe, changing purchase price and ability to keep saving. Those are scenario questions—not reasons to rush.

Work backwards from a safe settlement position

Start with the cash you want to retain after settlement. Then allow for purchasing costs, calculate the deposit actually available and test the resulting loan repayments at a higher interest rate—not only today’s rate.

A pre-approval can confirm the lender’s view at a point in time, but it is usually conditional. Avoid signing an unconditional contract until your finance position and contract have been appropriately reviewed.