One of the first questions every first home buyer asks is: how much deposit do I actually need? The answer is more flexible than many people realise. While 20% is the benchmark that eliminates Lenders Mortgage Insurance, Australians successfully purchase homes every week with deposits of 5% or even less. Here is what each deposit level actually means for your purchase and your costs.
Why 20% Is the Standard — and Why It Is Not Always Necessary
A 20% deposit achieves two things: it takes your loan-to-value ratio (LVR) to 80%, which is the threshold at which most lenders will lend without requiring Lenders Mortgage Insurance (LMI). It also typically qualifies you for better interest rates, since lower LVR loans are considered lower risk. For a $750,000 property, a 20% deposit is $150,000 — a figure that can take many years to accumulate in Sydney or Melbourne.
However, the 20% target is not a legal requirement — it is simply the point at which LMI becomes unnecessary. Whether it is worth waiting until you reach 20% depends on your property market, interest rates at the time, and whether house price growth is outpacing your ability to save. In some markets, buying sooner with a smaller deposit and paying LMI results in better long-term outcomes than waiting.
Smaller Deposit Options Available to Australian Buyers
With 10% deposit, most lenders will proceed, with LMI added either as a one-off fee or capitalised (added) onto the loan. LMI at 90% LVR on a $700,000 loan is approximately $14,000–$18,000 depending on the lender and LMI provider. With 5% deposit, you have two primary routes: the First Home Guarantee (government-backed, no LMI for eligible first home buyers) or standard lending with LMI (which at 95% LVR on the same loan would be approximately $22,000–$28,000).
For eligible single parents, the Family Home Guarantee allows purchase from just 2% deposit with no LMI. Guarantor loans offer another path — a family member provides their property equity as additional security, enabling the borrower to purchase without a cash deposit and without paying LMI.
Genuine Savings: What Lenders Require
Most lenders require at least 5% of the purchase price to come from 'genuine savings' — money accumulated in a savings account over at least three months. Gifts from family, tax refunds and bonuses received less than three months ago typically do not qualify as genuine savings, even if the funds are now in your account.
- ✓5% via First Home Guarantee — no LMI (income and price caps apply)
- ✓5% standard deposit — LMI applies (approx. $22,000–$28,000 at 95% LVR)
- ✓10% standard deposit — reduced LMI (approx. $14,000–$18,000 at 90% LVR)
- ✓20% deposit — no LMI required
- ✓Family Home Guarantee — from 2% for eligible single parents
Upfront Costs Beyond the Deposit You Must Budget For
Many first home buyers underestimate total upfront costs by focusing only on the deposit. In addition to your deposit, budget for: stamp duty or transfer duty (unless exempt as a first home buyer), conveyancing and legal fees ($1,500–$3,000), building and pest inspection ($400–$800), loan application fees ($0–$800 depending on lender), removalist costs ($1,000–$3,000) and utility connection fees.
Using NSW as an example: a first home buyer purchasing an existing home at $850,000 would pay approximately $18,615 in stamp duty (after the first home buyer partial concession), plus $2,000 in conveyancing, plus $600 in inspections — around $21,000 in non-deposit costs. This should sit alongside your deposit savings, not be drawn from your deposit itself.
Use the Stamp Duty Calculator
Each state and territory has its own stamp duty rates and first home buyer thresholds. Use state revenue office calculators — or speak with your broker — to estimate your stamp duty liability early, so you are not surprised at the point of purchase.
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About the Author
Sakib Manzoor
Senior Finance Wellness Expert
Sakib Manzoor is the founder of Secure Finance and brings extensive experience in Australian mortgage broking and financial wellness. Specialising in helping clients achieve their property finance goals through personalised strategies and expert guidance, Sakib is FBAA accredited and committed to providing clear, actionable advice. All content is written to meet Australian regulatory standards and is regularly updated to reflect current market conditions.