How Much Deposit to Buy a House? Start from 5%!

The standard deposit vs. the true cost of entry

The standard benchmark for a home loan deposit in Australia is 20% of the property’s purchase price. This percentage is highly preferred because it allows the borrower to avoid paying Lenders Mortgage Insurance (LMI). LMI is a significant, non-refundable cost that protects the lender if you default on the loan.

• 20% deposit: No LMI is required. This often provides access to the best available interest rates, resulting in the lowest long-term loan cost.

• 10% to 19% deposit: LMI is mandatory. While a lower deposit allows for faster market entry, the LMI premium is an added expense, usually capitalised (added) to the total loan amount.

• 5% deposit: This is the minimum deposit accepted by many lenders. It requires paying LMI and usually involves satisfying stricter lending criteria.

Crucially, your deposit is not the only cost. You must also budget for transaction costs, such as stamp duty, legal fees and conveyancing costs, which typically add another 3% to 5% to your required funds. The true answer to "how much deposit do I need to buy a house" is the required deposit plus these significant upfront expenses. HeyNest simplifies this complexity by connecting you with independent experts who clarify these total initial costs based on your state and unique financial position.

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Strategies to buy a house with a lower deposit

While a 20% deposit is the ideal, many first-time buyers leverage specific Australian strategies to enter the market with less cash upfront:

• The first home guarantee (FHBG): This government scheme allows eligible first home buyers to purchase a home with a minimum 5% deposit while avoiding LMI. The government guarantees the portion of the loan above 80%, making it a highly valuable avenue for entry.

• Family guarantee/security: A close family member, typically a parent, can use the equity in their own home as security for a portion of your loan. This can remove the need for LMI entirely, potentially allowing you to borrow up to 100% of the purchase price, though the guarantor takes on a significant financial responsibility.

• Lender products: Some specialised loan products or lenders offer lower LMI premiums for borrowers with strong financial profiles or specific professional qualifications, even with a smaller deposit.

Understanding the specific eligibility criteria for these schemes is complex, and the rules change frequently. A dedicated mortgage broker is essential here. The experts HeyNest connects you with can compare hundreds of loan products and government schemes simultaneously to determine the fastest, most affordable path to homeownership based on your personal financial situation and the actual deposit you have saved.

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Calculating your deposit: key factors lenders assess

A lender’s decision goes beyond the initial deposit amount; they evaluate your overall financial health. The size of your deposit determines your Loan to Value Ratio (LVR). A high deposit means a low LVR, which lenders view as lower risk. Lenders also rigorously assess the following:

• Income and expenses: They use your documented income and declared existing debts to calculate your genuine borrowing capacity and confirm you can comfortably service the loan repayments.

• Credit history: A clean credit file is non-negotiable. Any defaults or missed payments will negatively impact your application and the final interest rate offered.

• Genuine savings: Lenders prefer to see evidence that your deposit has been saved over time (typically 3 to 6 months). This confirms responsible financial discipline rather than funds suddenly received as a gift or windfall.

Securing pre-approval is the best way to understand the exact size of the deposit you need and what you can truly afford. HeyNest simplifies this crucial process: complete a quick online profile and we connect you with an independent broker who handles the complex calculations, comparisons and negotiations, ensuring your deposit and application meet all lender requirements without the stress.

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Frequently asked questions

What is LMI and can I avoid it with a small deposit?

LMI (Lenders Mortgage Insurance) protects the lender. You can potentially avoid it with a 5% deposit if you qualify for the government's First Home Guarantee scheme.

Is a 10% deposit better than a 5% deposit?

Generally, yes. A 10% deposit means a smaller loan amount, a lower LMI premium and typically offers access to better interest rates compared to a 5% deposit.

Do stamp duty and other fees come out of my deposit?

No, stamp duty, legal fees and conveyancing costs are separate transaction expenses. You must budget for these funds in addition to your initial deposit.