A goal for many Australian’s is to buying their first home. This is an exciting goal yet the major hurdle for many is knowing the exact amount of deposit that is needed – how much and how can someone save this in the right timeframe.
Many buyers put off or delay their home buying plan because they are led to believe that you need a 20% deposit. The fact that I can share is that this isn’t always the case.
Did you know that first home buyers in Australia can often buy with as little as a 5% deposit? Knowing the amount you need can be determined based on your current situation, the lender’s guidelines aswell as any available government schemes and programs in place. This article will guide you on what options might be available, how deposits work and help to to decide what’s right for you in today’s market.
Table of Contents
- Understanding deposits as a first home buyer
- Minimum deposit requirements explained
- Buying with a 5% deposit
- What is Lenders Mortgage Insurance (LMI)?
- Ways to reduce your required deposit
- Common first home buyer deposit mistakes
- Frequently asked questions
Understanding deposits as a first home buyer
A home loan deposit is the amount of money you need to contribute when buying a property. The remaining balance is funded by your home loan. This can be as low as 5% but varies depending on your situation and which lender you plan to approach.
The size of your deposit can impact on:
- Whether you pay Lenders Mortgage Insurance (LMI) or not
- The range of lenders available to you
- The interest rate the lender would offer
It is true that having a larger deposit can provide more flexibility and choices of which lender you can go to, it’s important to point out that having a full 20% deposit isn’t a requirement for qualifying for a home loan.
Minimum deposit requirements explained
Depending on your circumstances, most first home buyers will fall into one of the below categories when it comes to their deposit requirement:
| Deposit size | What it usually means |
| 5% | Generally requires LMI or a government guarantee |
| 10% | Wider lender options and reduced LMI costs |
| 15% | Significantly lower LMI costs or nil at some lenders |
| 20% | No LMI required, standard lending terms |
Most first home buyers enter the market with a deposit between 5% and 15%, not 20% as the time burden required to get to 20% often means many would be buyers sit on the sidelines for too long whilst property prices rise.
Buying with a 5% deposit
A good starting deposit and one which many first home buyers use to purchase a property is a 5% deposit. This is often built through their savings from the first job and is used as a stepping stone to enter the property market.
When your deposit is less then 20% you have 3 options depending on your circumstances:
- Pay Lenders Mortgage Insurance (LMI) – this is a once off cost to securing your loan and is insurance paid by you which covers the lender’s risk of lending to you, or
- Qualify for the 5% Deposit Scheme (previously known as the First Home Guarantee Scheme) which is a federal government initiative that allows you to avoid paying LMI and obtaining a lower interest rate, or
- Obtain an LMI waiver if you are a qualifying professional such as a medico, nurse, lawyer or accounting professional
Lower deposits can make it possible for you to buy sooner and this is often seen as beneficial (even if a cost like LMI is payable) as you get into the market and own your own home.
What Is Lenders Mortgage Insurance (LMI)?
Lenders Mortgage Insurance is an insurance premium borrowers pay as part of their loan when they have a deposit under 5%. This insurance protects the lender, not the borrower, if a loan was to go into default, and they need to recover their funds.
Key points to understand:
- LMI can often be added to your loan, reducing upfront costs
- The cost decreases as your deposit increases (eg, you pay less LMI with a 10% deposit versus a 5% deposit)
- You should weigh up the cost of LMI with the benefits specific to you to see if this path makes financial sense to you
For many buyers, the cost of waiting and continuing to save to the 20% can often take many months if not years. Buying sooner often outweighs the initial cost of LMI.
Ways to Reduce Your Required Deposit
For some first home buyers, other benefits may allow you to reduce the total amount of cash needed upfront.
Government support
- Using 5% Deposit Scheme
- Receiving a First Home Owner Grant (FHOG)
- Stamp duty concessions (state‑based and usually capped based on property value)
Family assistance
- Family guarantee loan structure which can use a parent’s property as security. No LMI applies and you can borrower up to 100%)
- Gifts from family to support and add to your total deposit
Smart steps to prepare yourself before you buy
- Build consistent genuine savings over a period of time
- Reduce and clear any debts before applying, especially credit cards, buy now pay later or personal loans with high interest rates
Common First Home Buyer Deposit Mistakes
Below are some of the common mistakes or misconceptions I see when speaking with first home buyers who are trying to enter the market:
- Delaying their purchase by aiming for a 20% deposit
- Assuming LMI is expensive and a bad way to borrow without a full understanding of the benefits versus the costs
- Not thoroughly checking eligibility for government grants or home buyer schemes
- Making decisions without seeking qualified advice from a lending expert
If you properly review your current finances and future goals, you can better place yourself to enter the property market and prevent costly delays or stress later on.
Frequently Asked Questions
Is a 20% deposit always required?
No. While a 20% deposit avoids LMI, many buyers successfully purchase with a smaller deposit often as low as 5%.
Can the First Home Owner Grant be used as part of my deposit?
This depends on the state and lender, but it can often contribute toward your overall funds.
Is buying with a low deposit risky?
Not necessarily. The key factors are long‑term affordability, cash buffers, and loan structure — not just deposit size.
How long do I need to save my deposit?
Most lenders require evidence of genuine savings held for at least three months.
Next Steps
If you’d like to know exactly how much deposit you need based on your income, property goals, and location, you can schedule a complimentary no‑obligation deposit check with My Options Finance to help you understand your options and plan your future purchase with confidence.
