How Much Deposit Do You Really Need to Buy a House in Australia?


Saving for a house deposit is often the biggest hurdle for aspiring homeowners. While the common belief is that you need a 20% deposit to avoid extra costs, the reality is more nuanced. This comprehensive guide breaks down deposit requirements, lenders mortgage insurance (LMI), genuine savings rules, and proven strategies to help you enter the property market sooner.

Understanding Minimum Deposit Requirements in Australia

In Australia, the minimum deposit required by most lenders is typically 5% to 10% of the property’s purchase price. However, this baseline comes with conditions. A deposit below 20% usually triggers Lenders Mortgage Insurance (LMI), a one-time premium that protects the lender if you default. LMI can add thousands to your upfront costs, but it’s not always a dealbreaker—it can be a strategic tool to buy sooner.

What Counts as a Deposit?

Lenders assess your deposit based on the Loan-to-Value Ratio (LVR), which is the loan amount divided by the property’s value. For example:

• Property price: $600,000
• Deposit: $60,000 (10%)
• Loan amount: $540,000
• LVR: 90%

Deposits can come from savings, gifts, inheritances, or government grants. However, lenders distinguish between genuine savings (funds you’ve accumulated over time) and non-genuine savings (like gifts or windfalls), which affect your loan eligibility.

The 20% Deposit Myth and LMI Thresholds

A 20% deposit (80% LVR) is the magic number to avoid LMI, but it’s not mandatory. Many buyers successfully purchase with smaller deposits. Here’s how LMI costs vary by LVR based on 2024 data from a major Australian LMI provider:

Source: Genworth Financial Australia, LMI premium estimates 2024. Actual costs depend on lender and borrower profile.

LMI premiums increase sharply above 90% LVR. However, some professions (e.g., doctors, lawyers) may qualify for LMI waivers with a 10% deposit through specialized lenders.

Genuine Savings: What Lenders Really Look For

Most lenders require that at least 5% of the property value comes from genuine savings if your deposit is less than 20%. Genuine savings demonstrate your ability to save over time and include:

• Accumulated funds in a savings account held for at least 3 months.
• Term deposits.
• Shares or managed funds held for at least 3 months.
• Equity in an existing property.

Non-genuine savings that may not count toward the 5% requirement include:

• Gifts from parents (unless held in your account for 3+ months).
• Inheritances received recently.
• First Home Owner Grant (FHOG).
• Personal loans or credit card advances.

Exceptions to Genuine Savings

Some lenders may waive the genuine savings requirement if you have a strong rental history (12+ months of consistent rent payments) or if you’re using a guarantor loan. Always check with a mortgage broker to find lenders with flexible policies.

Government Schemes to Boost Your Deposit

Several government initiatives can reduce the deposit burden or eliminate LMI for eligible first-home buyers.

First Home Guarantee (FHBG)

Starting July 2023, the First Home Guarantee allows eligible first-home buyers to purchase with a 5% deposit without paying LMI. The government guarantees the remaining 15%, essentially acting as a guarantor. Key details:

• Available for owner-occupied purchases only.
• Property price caps apply (e.g., $800,000 in Sydney, $700,000 in Melbourne as of 2024).
• Income thresholds: singles up to $125,000, couples up to $200,000.
• 35,000 places annually.

Family Home Guarantee (FHG)

Targeted at single parents with dependents, this scheme allows a 2% deposit without LMI. Up to 5,000 places per year from 2023-2024.

Regional First Home Buyer Guarantee

For buyers in regional areas, this offers a 5% deposit with no LMI. 10,000 places annually.

Source: National Housing Finance and Investment Corporation (NHFIC), 2024.

Alternative Strategies to Enter the Market Sooner

If saving a large deposit feels impossible, consider these approaches.

Guarantor Loans

A family guarantor can use their property equity as security, allowing you to borrow up to 105% of the purchase price (covering the full price plus costs like stamp duty). This eliminates the need for a deposit but requires a willing guarantor and careful legal advice.

Using Equity from Another Property

If you already own property, you can access equity to fund a deposit for an investment or new home. Lenders may allow you to borrow up to 80% of the equity without LMI.

Co-Ownership and Shared Equity

Shared equity schemes, like the Victorian Homebuyer Fund, let you co-purchase with the government, reducing your deposit to as low as 5%. The government shares in any capital gain or loss.

How Much Deposit Do You Really Need? A Realistic Breakdown

Let’s calculate the total upfront costs for a $700,000 property in New South Wales (stamp duty concessions may apply for first-home buyers).

Note: Stamp duty exemptions for first-home buyers in NSW apply to properties under $800,000 (2024). Other states have different thresholds.

Beyond the deposit, budget for:

• Conveyancing and legal fees: $1,500–$3,000
• Building and pest inspections: $500–$1,000
• Loan application fees: $0–$1,000 (often waived)
• Moving costs: $500–$2,000

Aim for a buffer of at least $5,000–$10,000 above the minimum.

Tips to Speed Up Your Deposit Savings

• First Home Super Saver Scheme (FHSSS): Contribute up to $15,000 per year into your super (max $50,000 total) and withdraw for a deposit with tax benefits.
• Automate savings: Set up a dedicated high-interest account and schedule regular transfers.
• Cut expenses: Review subscriptions, negotiate bills, and consider a side hustle.
• Rentvesting: Buy an investment property in a cheaper area while renting where you want to live.

FAQ

Can I buy a house with a 5% deposit in Australia?

Yes, many lenders offer loans with a 5% deposit, but you’ll typically pay LMI. Government schemes like the First Home Guarantee allow eligible buyers to avoid LMI with a 5% deposit.

What is Lenders Mortgage Insurance and do I have to pay it?

LMI protects the lender if you default on a loan with less than a 20% deposit. It’s a one-off cost, usually added to the loan amount. You can avoid it by saving 20% or using a guarantor or government scheme.

What are genuine savings and why do they matter?

Genuine savings are funds you’ve saved over at least 3 months. Lenders require them to prove financial discipline. Exceptions exist for strong rental history or guarantor loans.

How does a guarantor loan work?

A guarantor (usually a family member) offers their property as additional security, allowing you to borrow up to 105% of the purchase price. This can eliminate the need for a deposit but involves risks for the guarantor.

Are there any government grants for first-home buyers?

Yes, the First Home Owner Grant (FHOG) provides up to $10,000–$30,000 depending on the state and property type (e.g., new builds). Additionally, the First Home Guarantee enables a 5% deposit without LMI.

References

1. Australian Government, National Housing Finance and Investment Corporation (NHFIC), “First Home Guarantee,” 2024. https://www.nhfic.gov.au/what-we-do/first-home-guarantee/
2. Genworth Financial Australia, “LMI Premium Estimator,” 2024. https://www.genworth.com.au/
3. Australian Taxation Office, “First Home Super Saver Scheme,” 2023-2024. https://www.ato.gov.au/individuals/super/withdrawing-and-using-your-super/first-home-super-saver-scheme/
4. Revenue NSW, “First Home Buyer Assistance Scheme,” 2024. https://www.revenue.nsw.gov.au/grants-schemes/first-home-buyer
5. Victorian Government, “Victorian Homebuyer Fund,” 2024. https://www.vic.gov.au/homebuyer-fund