Saving for a Home Loan Deposit: How Much Will You Need?
Key Takeways
Your real savings target is the deposit plus upfront costs (stamp duty, conveyancing, inspections, loan fees) plus a buffer to land on after settlement, not just a percentage of the price.
A 20% deposit avoids Lenders Mortgage Insurance and gives the widest lender choice; 10% and 5% get you in sooner but mean LMI, a larger loan and a thinner buffer.
Eligible first home buyers can skip LMI with a 5% deposit (2% for single parents) under the expanded 5% Deposit Scheme, or use a guarantor to reach 80% LVR.
The buy-sooner-or-save-longer call comes down to scheme eligibility, the LMI premium, and whether the loan stays comfortable to hold.
Working out how much to save before buying has become a moving target. The Reserve Bank of Australia (RBA) cash rate sits at 4.35% after a run of increases through the first half of 2026, average variable rates are in the high 6% range, and property prices in many areas remain high. Against that backdrop, the deposit is the single biggest hurdle most buyers face, and the amount you need is not as simple as a percentage of the purchase price.
What changed the picture is the expansion of the Australian Government 5% Deposit Scheme in late 2025, which removed income caps and placed limits and allowed eligible first home buyers to enter with a smaller deposit and no insurance. That has shifted the question from "how do I save 20%?" to a more useful one: how much do I genuinely need, what are the trade-offs of a smaller deposit, and is buying sooner the right call for my situation?
This article sets out what counts as a deposit, what 5%, 10%, and 20% each mean in practice, the costs that sit alongside the deposit, and a clear way to decide whether to buy now or keep saving.
The short answer
The deposit you need depends on the pathway you take. A 20% deposit is the benchmark because it lets you avoid Lenders Mortgage Insurance and access the widest range of lenders and rates. Below that, you can usually still buy, but you will generally pay Lenders Mortgage Insurance unless you use a government scheme or a guarantor.
The more important point is that the deposit is not your only savings target. Your real number is the deposit plus the upfront costs of buying, plus a buffer to land on after settlement. A buyer who saves exactly 5% and nothing more is often not as ready as the percentage suggests.
What counts as a home loan deposit
A deposit is the portion of the purchase price you pay yourself, with the lender funding the rest. How you accumulate it matters almost as much as the amount, because lenders look closely at where it came from.
Most lenders want to see genuine savings, money you have built up yourself over time rather than a lump sum that recently appeared. A common rule is that at least 5% of the property value should be saved over roughly three months, though this varies by lender and can be waived in some situations. Other sources can count toward your deposit too, including gifted funds from family, savings withdrawn under the First Home Super Saver Scheme (FHSS), and in some cases, proceeds from selling an asset. The treatment of each differs between lenders, which is worth knowing before you assume a particular sum will be accepted.
Why lenders care about your loan-to-value ratio
The deposit matters to a lender mainly through your loan-to-value ratio (LVR), which is the size of your loan expressed as a percentage of the property value. The LVR is one of the clearest signals a lender uses to gauge risk.
A larger deposit produces a lower LVR, and a lower LVR means less risk to the lender if the property has to be sold. An 80% LVR, achieved with a 20% deposit, is the level most lenders treat as comfortable. Above 80%, lenders generally require insurance, may apply tighter policy, and in some cases offer slightly higher rates. Your deposit also interacts with borrowing capacity, since lenders assess your repayments at your actual rate plus a buffer of 3 percentage points set by the Australian Prudential Regulation Authority (APRA), which means your loan is tested at around 9.5%. A larger deposit reduces the loan you need to service against that test.
What different deposit sizes mean
The size of your deposit changes far more than how quickly you can buy. It affects your insurance costs, your repayments, your lender choice and your risk exposure. The three common deposit levels below show how those factors shift.
A 20% deposit (80% LVR)
A 20% deposit is the strongest position. It avoids Lenders Mortgage Insurance entirely, gives you access to the widest range of lenders and their sharpest rates, and produces a smaller loan with lower repayments and less interest over time. The trade-off is time: on current prices, saving 20% can take years, during which prices and rates may move. For buyers who can reach it without an unreasonable wait, it remains the most cost-efficient path.
A 10% deposit (90% LVR)
A 10% deposit is a middle ground. You will generally pay Lenders Mortgage Insurance, but the premium is lower than at a 95% LVR, and you reach the market sooner than waiting for a full 20%. This level can suit buyers who want to balance a faster entry against a manageable insurance cost, and who have enough left over for upfront costs and a buffer.
A 5% deposit (95% LVR)
A 5% deposit gets you in the door fastest and is where government support matters most. Outside a scheme, a 95% LVR usually attracts the highest Lenders Mortgage Insurance premium, a larger loan, higher repayments and a thinner buffer against rate rises. There is also greater exposure to negative equity, where the loan exceeds the property value if prices dip. Through the Australian Government 5% Deposit Scheme, eligible first home buyers can avoid the insurance entirely, which removes the biggest drawback, though the larger loan and smaller buffer still call for careful budgeting.
Lenders Mortgage Insurance explained
Lenders Mortgage Insurance (LMI) is one of the most misunderstood costs in buying a home, and understanding it helps you weigh a smaller deposit properly. It is worth being clear about what it does and does not do for you.
LMI applies when you borrow more than 80% of the property value. It is an insurance premium that protects the lender, not you, if you default and the property sells for less than the loan. The cost rises with both your LVR and your loan size, and can range from several thousand dollars to tens of thousands at higher LVRs on dearer properties. In most cases, it can be capitalised, meaning it is added to your loan rather than paid upfront, which preserves cash but means you pay interest on it over the life of the loan. It is generally a one-off cost tied to that loan, so it is not refunded if you refinance later. Weighing the premium against the benefit of buying sooner is one of the key judgements a smaller-deposit buyer has to make.
The costs beyond the deposit
Many buyers save hard for the deposit and are caught out by everything else due at settlement. Building these costs into your savings target from the start is what separates a buyer who is ready from one who is merely close.
Depending on your state and property, plan to budget for:
Stamp duty, where first home buyer concessions or exemptions may reduce or remove it.
Conveyancing or legal fees for the contract and settlement.
Building and pest inspections before you commit to a purchase.
Loan establishment or application fees.
Lenders Mortgage Insurance, if your deposit is below 20% and no scheme applies.
Moving costs, utility connections and home insurance from settlement day.
An emergency buffer to land on once you own the property.
On a $600,000 purchase, these costs can add a meaningful sum on top of the deposit, which is why the headline percentage understates what you truly need saved.
Government schemes and grants that reduce the deposit hurdle
Government support can lower the amount you need to save, and in some cases remove the largest cost of a small deposit. Knowing what you may be eligible for lets you set an accurate target rather than over-saving or being caught short.
The most relevant options include the Australian Government 5% Deposit Scheme, which from 1 October 2025 has no income caps, no waitlists and no place limits, and lets eligible first home buyers purchase with a 5% deposit and no LMI because the government guarantees up to 15% of the value. A separate stream lets eligible single parents and guardians buy with a 2% deposit. Beyond that, the First Home Owner Grant, offered by states and territories and usually tied to new builds, and first home buyer stamp duty concessions, which differ by state, can both cut upfront costs. The First Home Super Saver Scheme lets you withdraw eligible voluntary super contributions toward a deposit. A family guarantee, where a relative uses equity in their own property as additional security, is another way to avoid LMI without a full 20% deposit, though it carries responsibilities for the guarantor.
Genuine savings and what lenders accept
Even with the right total, how you hold and built your deposit can affect approval. Lenders use genuine savings as evidence that you can manage money consistently, which is a proxy for handling repayments.
Genuine savings usually means funds you have accumulated over at least three months, such as regular deposits into a savings account or money held in an offset. A lump sum that arrived recently, like a gift or a tax refund, may not count as genuine savings on its own, even though it can still form part of your deposit. Some lenders accept a strong rental history as evidence in place of genuine savings, and treatment of gifted funds varies, with most lenders wanting a letter confirming the gift is not a loan. Because these rules differ between lenders, a deposit that one lender accepts comfortably may need supporting evidence at another.
Should you buy sooner with a smaller deposit, or save longer?
This is the decision underneath the whole topic, and there is no single right answer. It comes down to weighing the cost and risk of a smaller deposit against the cost and uncertainty of waiting. Setting the trade-offs side by side makes the choice clearer.
Buying sooner with a smaller deposit lets you enter the market before prices potentially rise, stops further rent, and, where a scheme applies, avoids LMI. The cost is a larger loan, higher repayments, a thinner buffer and more exposure to negative equity. Saving longer for a bigger deposit lowers your loan, repayments and insurance cost, but means more time renting and the risk that prices or rates move against you while you save.
As a rough guide, leaning toward buying sooner can make sense if you are eligible for a scheme that removes LMI, your income is stable, and your budget holds comfortably at the larger repayment. Leaning toward saving longer can make sense if a modest additional wait gets you to 20%, if LMI would be a large premium with no scheme available, or if your budget would be stretched at the higher loan amount. The right answer is the one that keeps the loan comfortable to hold, not just possible to obtain.
Real borrower scenarios
The trade-offs become concrete when applied to real situations. The following examples show how deposit decisions tend to play out.
A single first home buyer with a 5% deposit who qualifies for the Australian Government 5% Deposit Scheme can avoid LMI and enter the market years sooner than saving 20% would allow. Their focus shifts to ensuring the larger loan is comfortable and that they keep a buffer after settlement.
A couple weighing a 10% deposit against waiting for 20% might find that a relatively short additional period of saving removes the insurance premium entirely. If the wait is reasonable and prices are steady, building the larger deposit can be the more cost-efficient path.
A buyer with family support may use a guarantor, where a relative's equity provides additional security, to reach an 80% LVR without a full deposit and avoid LMI, provided both parties understand the guarantor's obligations.
A regional buyer often faces a lower purchase price, which means a smaller deposit in dollar terms and a more achievable savings target, sometimes making a 20% deposit realistic where it would not be in a capital city.
How a mortgage broker helps
Deposit rules, LMI pricing, genuine savings policies and guarantor options all vary between lenders, and the differences are not published. This is where a broker adds practical value beyond finding a rate.
A broker can compare how lenders price LMI at your LVR, which accept your form of deposit, and whether a scheme or guarantor produces a better outcome than saving longer. They can also model the real difference in repayments between deposit levels so you can see the trade-off in dollars. If you are working out how much to save and which deposit pathway suits your situation, speaking with a mortgage broker in Albury & Wodonga can help you understand your deposit requirements, compare lender and LMI policies, and weigh buying sooner against saving longer before you commit.
Frequently Asked Questions (FAQs)
How much deposit do I need to buy a house in Australia?
A 20% deposit lets you avoid Lenders Mortgage Insurance and access the widest range of rates, but it is not the only option. Eligible first home buyers can purchase with a 5% deposit, or 2% for eligible single parents, through the Australian Government 5% Deposit Scheme without paying LMI. Whatever the deposit, remember to budget for stamp duty, conveyancing and other upfront costs on top.
Is a 20% deposit still necessary?
No, though it remains the most cost-efficient choice where it is achievable. A 20% deposit avoids LMI and produces a smaller loan with lower repayments. Many buyers now enter with less, using a government scheme, a guarantor or by paying LMI, and accept the trade-offs in exchange for buying sooner.
What is LMI and who does it protect?
Lenders Mortgage Insurance is a premium charged when you borrow more than 80% of the property value. It protects the lender, not you, if you default and the property sells for less than the loan. It does not cover your repayments if you fall into hardship, which is a common misunderstanding.
Can LMI be added to the loan?
In most cases, yes. LMI can usually be capitalised, meaning it is added to your loan rather than paid upfront. This preserves your cash at settlement, but you then pay interest on the premium over the life of the loan, so it costs more in the long run than paying it separately would.
What counts as genuine savings?
Genuine savings generally means funds you have accumulated over at least three months, such as regular savings deposits or money held in an offset account. A recent lump sum, like a gift or tax refund, can form part of your deposit but may not count as genuine savings on its own. Some lenders accept a consistent rental history as an alternative.
Can I use a guarantor instead of saving 20%?
Often, yes. A family guarantee lets a relative use equity in their own property as additional security, which can bring your effective LVR to 80% and avoid LMI without a full deposit. It is a significant commitment for the guarantor, who takes on responsibility for part of the loan, so both parties should understand the obligations before proceeding.
How much should I keep aside after the settlement?
A common target is three to six months of essential expenses, including your new repayment, held in accessible savings or an offset account. This buffer covers early surprises such as a repair, a rate rise or an income gap. Buyers who settle with nothing in reserve, particularly on a small deposit, are the most exposed to a single setback.
The Bottom Line
The deposit you need depends on the pathway that suits you, not a single fixed percentage. A 20% deposit avoids Lenders Mortgage Insurance and lowers your costs, but smaller deposits are now a realistic route into the market, especially with the expanded 5% Deposit Scheme removing the insurance for eligible first home buyers. Whatever level you choose, save for the full picture: the deposit, the upfront costs and a buffer to land on after settlement. Work out your real target, weigh the cost of a smaller deposit against the cost of waiting, and you can decide on a deposit that gets you into a home you can comfortably hold, rather than one that simply gets you across the line.