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

For many Australians, buying a home starts with one question:

It’s a fair question, but it’s also one that’s often misunderstood.

You may have heard that you need a 20% deposit before you can buy a home. While saving 20% can certainly have advantages, it’s not the only path to homeownership. Depending on your financial situation, the type of property you’re buying and the home loan you’re applying for, you may be able to purchase a property with a deposit as low as 5%.

The bigger question isn’t simply how much deposit you need to satisfy a lender, it’s how much you need to buy confidently while keeping your finances in a healthy position after settlement.

A deposit is only one part of the overall cost of buying a home. Government charges, legal fees, inspections, moving costs and maintaining an emergency fund all play an important role in your financial preparation.

In this guide, we’ll explain how different deposit sizes affect your home loan, when Lenders Mortgage Insurance (LMI) applies, the additional costs many buyers overlook, and why waiting to save a larger deposit isn’t always the smartest financial decision.

Is a 20% Deposit Really Necessary?

For decades, Australians have been told that saving a 20% deposit is the goal before buying a home.

The reason is simple: once your deposit reaches 20% of the property’s purchase price, you generally avoid paying Lenders Mortgage Insurance (LMI). A larger deposit also reduces the amount you need to borrow, resulting in lower repayments and less interest over the life of your loan.

However, that doesn’t mean 20% is a requirement.

Many lenders are willing to approve home loans with deposits of 5%, 10% or 15%, provided you meet their lending criteria. Eligible first-home buyers may even be able to purchase with a 5% deposit without paying LMI through government guarantee schemes.

For many buyers, waiting until they’ve saved a full 20% could take several more years. During that time, property prices may continue to rise, potentially increasing the amount they need to save faster than they can build their deposit.

That’s why it’s important to think beyond one percentage.

Instead of asking: “Do I have 20% yet?”

A better question is: “Do I have enough savings to buy comfortably while keeping my finances secure?”

Sometimes the answer is 20%. Sometimes it’s 10%. And for some eligible buyers, it could be as little as 5%.

How Much Deposit Do You Actually Need?

The amount of deposit you contribute affects much more than whether your loan is approved.

It influences:

• The size of your home loan.
• Whether you’ll pay Lenders Mortgage Insurance (LMI).
• Your monthly repayments.
• The total interest you’ll pay over time.
• The amount of savings you’ll have remaining after settlement.

Here’s how different deposit sizes compare across common property prices.

While these figures show the deposit and loan amount, it’s also important to understand how each option affects your overall buying strategy.

Buying with a 5% Deposit

A 5% deposit allows many buyers to enter the property market much sooner.

For example, buying an $800,000 home requires a deposit of $40,000 instead of waiting to save $160,000. For eligible first-home buyers using the First Home Guarantee, this can also mean avoiding Lenders Mortgage Insurance despite contributing less than 20%.

Buying with a 10% Deposit

Many buyers see a 10% deposit as a practical middle ground.

It reduces the amount borrowed while being considerably quicker to save than a full 20%.

Buying with a 15% Deposit

A 15% deposit brings you much closer to the 20% threshold and significantly reduces the size of your loan.

Buying with a 20% Deposit

Contributing a 20% deposit has traditionally been viewed as the benchmark for home buyers.

What Else Do You Need to Budget For?

One of the biggest mistakes buyers make is assuming their deposit is the only upfront cost.

In reality, purchasing a home involves a range of additional expenses that should be factored into your savings goal. As a general guide, buyers should consider allowing an additional 5% to 7% of the property’s purchase price for government charges, professional services and moving expenses.

Depending on the property and your circumstances, these costs may include:

Stamp Duty

Stamp duty is often the largest upfront cost after your deposit. The amount varies depending on your state or territory, the property’s value and whether you’re eligible for concessions as a first-home buyer. Because stamp duty can amount to thousands, or even tens of thousands, of dollars, it’s essential to calculate this cost before committing to a purchase.

Transfer and Registration Fees

When ownership changes hands, government fees apply to transfer the property’s title into your name and register your mortgage. Although these charges are generally much smaller than stamp duty, they still form part of your settlement costs.

Conveyancing or Solicitor Fees

Buying property involves legal contracts and settlement procedures. A conveyancer or solicitor reviews contracts, manages legal documentation and helps ensure settlement proceeds smoothly. Professional advice at this stage can help identify potential issues before they become costly problems.

Building and Pest Inspections

Before purchasing an established property, it’s wise to arrange professional inspections. A building inspection can identify structural concerns, while a pest inspection checks for issues such as termite damage or other infestations. Although these inspections add to your upfront costs, they may save you from expensive repairs after you’ve moved in.

Loan Establishment Costs

Some lenders charge loan establishment or application fees. While many lenders now offer products with minimal upfront fees, it’s still worth understanding any costs associated with setting up your mortgage.

Moving Costs

Moving into your new home often involves expenses that buyers underestimate. These might include:

• Removalists.
• Truck hire.
• Packing materials.
• Cleaning services.
• New furniture or appliances.

These costs can quickly add up, particularly if you’re moving interstate or into a larger property.

Utility Connections

Connecting electricity, gas, water and internet services may involve one-off setup costs that should also be included in your moving budget.

Don’t Forget Your Emergency Fund

Perhaps the most overlooked expense isn’t a fee at all, it’s the money you choose not to spend.

Using every dollar you’ve saved for your deposit may leave you financially vulnerable once you’ve settled into your new home. Unexpected repairs, medical expenses, vehicle maintenance or temporary income changes can all place pressure on your finances if you have no savings left.

Keeping an emergency fund after settlement can provide valuable peace of mind and reduce the likelihood of relying on credit if something unexpected happens.

Understanding Lenders Mortgage Insurance (LMI)

One of the biggest concerns for buyers contributing less than a 20% deposit is Lenders Mortgage Insurance (LMI).

Unfortunately, it’s also one of the most misunderstood parts of the home buying process. Many people assume LMI protects them as the borrower. It doesn’t.

LMI is an insurance policy that protects the lender, not the homeowner.

If a borrower defaults on their home loan and the sale of the property doesn’t fully cover the outstanding loan balance, the insurer compensates the lender for the shortfall. Depending on the circumstances, the insurer may still seek to recover that amount from the borrower.

So why do lenders charge it?

The answer is risk. When buyers contribute a smaller deposit, the lender is financing a larger percentage of the property’s value. This increases the lender’s exposure if property prices fall or the borrower cannot meet their repayments. LMI helps reduce that risk, allowing lenders to offer loans to buyers who may not yet have saved a full 20% deposit.

The amount you pay generally depends on factors such as:

• Your deposit size.
• The property’s purchase price.
• Your loan amount.
• The lender’s assessment criteria.

As a general guide, LMI premiums can range from around 1% to 5% of the loan amount, with the highest premiums typically applying to buyers contributing a 5% deposit.

Many lenders also allow the LMI premium to be capitalised into the loan. This means you don’t need to pay it upfront at settlement. Instead, it’s added to your mortgage balance. While this can reduce your immediate cash requirements, it also means you’ll pay interest on that amount over the life of the loan.

Because of this, many buyers automatically assume LMI should always be avoided. The reality, however, isn’t always that simple. Sometimes paying LMI can actually place you in a stronger financial position than waiting several more years to save a larger deposit, particularly if property values continue to rise while you’re saving.

Should You Save Longer or Buy Sooner?

One of the biggest financial decisions you’ll make isn’t just how much to save, it’s when to buy.

Many Australians delay purchasing a home because they’re determined to reach a 20% deposit. While that approach can help avoid Lenders Mortgage Insurance (LMI), it isn’t always the most cost-effective strategy. The property market doesn’t stand still while you’re saving for a deposit. If home prices rise faster than your savings, you may find yourself chasing a moving target.

The Cost of Waiting

Imagine you’re planning to buy an $800,000 property.

You decide to delay your purchase for 18 months so you can save an additional $40,000, allowing you to contribute a larger deposit. During those same 18 months, property prices in your area increase by $70,000.

Although you’ve worked hard to save another $40,000, the property you wanted now costs $870,000. Instead of moving closer to your goal, you’re effectively $30,000 further behind because the market increased faster than your savings.

This doesn’t mean buying sooner is always the right decision. However, it highlights why the decision shouldn’t be based solely on reaching a particular deposit percentage. It’s important to weigh the cost of waiting against the benefits of entering the market earlier.

Understanding Opportunity Cost

Economists describe this as opportunity cost: the value you give up when choosing one option over another. When you delay buying a property, there are two important opportunity costs to consider.

Missing Out on Capital Growth

Property values don’t always rise, but historically many Australian markets have experienced long-term growth. If a $600,000 property increases in value by 5% over a year, that’s $30,000 in additional equity that belongs to the homeowner, not the person still saving for a deposit. Buying earlier may allow you to benefit from that growth sooner.

Paying Rent Instead of Building Equity

While renting may be the right choice for many people, it’s worth recognising that rent doesn’t build ownership in an asset. Mortgage repayments, on the other hand, generally include repayments towards your loan principal over time, helping you gradually build equity in your home. This doesn’t mean renting is “wasted money”, everyone needs somewhere to live, but it’s useful to compare the long-term financial outcomes when deciding whether to wait or buy.

Ultimately, there’s no universal answer. The right decision depends on your financial position, the local property market, your employment stability and your long-term goals.

Three Buyers, Three Different Outcomes

Let’s look at a simple example. Three buyers are interested in purchasing the same $800,000 property, but each chooses a different approach.

None of these buyers made the “wrong” decision. Each approach has advantages and trade-offs.

Buyer A entered the market earlier but accepted the additional cost of LMI.

Buyer B reduced both their loan amount and LMI while still buying sooner than waiting for a full 20% deposit.

Buyer C avoided LMI altogether but may have needed to save considerably more if property values increased during those two years.

The best option depends on your personal circumstances, not simply the size of your deposit.

Ways to Build Your Deposit Faster

Saving a home deposit can feel overwhelming, particularly as property prices continue to rise. Fortunately, there are practical strategies that may help you reach your goal sooner.

Create a Realistic Budget

The first step is understanding exactly where your money goes each month. Review your:

• Income
• Fixed expenses
• Discretionary spending
• Existing debt repayments

Many people discover they’re spending more than expected on subscriptions, takeaway meals or impulse purchases. Redirecting even small amounts into your deposit savings can make a meaningful difference over time.

Automate Your Savings

Treat your deposit savings like any other essential bill. Setting up an automatic transfer each payday helps build consistency and removes the temptation to spend money before saving it. Even modest regular contributions can grow significantly over time.

Reduce High-Interest Debt

Paying off high-interest debts such as credit cards or personal loans can improve your financial position in two ways. First, you’ll pay less interest. Second, reducing existing debts may improve your borrowing capacity when you eventually apply for a home loan.

Consider a High-Interest Savings Account

Keeping your deposit in a competitive savings account allows your money to continue growing while you save. Compare interest rates regularly and check whether there are any conditions attached, such as minimum monthly deposits or transaction requirements.

Family Assistance

Some buyers receive financial assistance from parents or other family members. This may come in the form of:

• A cash gift.
• A guarantor arrangement using family property as additional security.

While these options can help buyers enter the market sooner, they should be carefully considered because they also involve responsibilities and potential risks for everyone involved.

Explore Government Assistance

Depending on your circumstances, you may also be eligible for government support. Examples include:

• First Home Guarantee, allowing eligible buyers to purchase with a 5% deposit without paying LMI.
• Family Home Guarantee, supporting eligible single parents and legal guardians with deposits as low as 2%.
• First Home Owner Grant, available in many states for eligible buyers purchasing or building new homes.
• State and territory stamp duty concessions, which may reduce one of the largest upfront costs of buying.

Eligibility requirements vary, so it’s worth checking which programs apply to your situation.

Common Deposit Mistakes

Even financially prepared buyers can overlook important details when saving for a home. Here are some of the most Common Mistakes.

Thinking You Must Save 20%

While a 20% deposit has advantages, it’s not the only path to homeownership. Many buyers successfully purchase with smaller deposits depending on their circumstances.

Using Every Dollar for Your Deposit

Contributing every cent you’ve saved may leave you with no financial buffer after settlement. Unexpected expenses can arise at any time, making an emergency fund an important part of your overall plan.

Forgetting Upfront Buying Costs

Stamp duty, legal fees, inspections and moving expenses can quickly add thousands of dollars to your budget. Planning only for the deposit may leave you short when settlement arrives.

Waiting Forever for the “Perfect” Deposit

Saving more is generally positive. However, waiting indefinitely while property prices continue rising can make buying more difficult rather than easier.

Not Getting Pre-Approval Early

Pre-approval provides a clearer understanding of your borrowing capacity and allows you to search for properties with greater confidence. It may also place you in a stronger position when making an offer.

Common Myths About Home Deposits

Buying a home is surrounded by plenty of well-meaning advice, but not all of it reflects today’s lending environment.

Myth: “I Need a 20% Deposit.”

Reality: Many lenders offer home loans with deposits below 20%, and eligible buyers may even avoid LMI through government guarantee schemes.

Myth: “The Bigger My Deposit, the Better.”

Reality: A larger deposit reduces your loan, but waiting years to save it may not always be the most financially beneficial decision if property prices continue to rise.

Myth: “I Should Use All My Savings for the Deposit.”

Reality: Keeping an emergency fund after settlement provides valuable financial security and helps protect you from unexpected expenses.

Myth: “LMI Is Always a Waste of Money.”

Reality: LMI is an additional cost, but for some buyers it provides an opportunity to enter the market earlier. Depending on future property price growth, that decision may prove financially beneficial over the long term.

Questions to Ask Yourself Before Buying

Before deciding how much deposit you need, consider asking yourself:

• Am I financially comfortable buying now, or would waiting genuinely improve my position?
• Will I still have emergency savings after settlement?
• Have I budgeted for stamp duty, legal costs and inspections?
• Would paying LMI allow me to enter the market sooner?
• Am I eligible for any government assistance?
• How stable is my employment and income?
• Does this purchase support my long-term financial goals?

The answers to these questions are often more valuable than focusing on a single deposit percentage.

Buying With Confidence Starts With the Right Strategy

Saving a deposit is a significant milestone, but it’s only one part of preparing to buy a home.

The right deposit isn’t necessarily the largest one you can save. It’s the one that allows you to purchase a property with confidence while still maintaining enough financial flexibility to manage life’s unexpected expenses and continue working towards your future goals.

For some buyers, that may mean waiting until they’ve saved 20%.

For others, buying sooner with a smaller deposit, supported by careful planning, government assistance or Lenders Mortgage Insurance, may be the better financial decision.

At Pinpoint Finance, we believe every buyer’s situation is different. Rather than focusing on a single percentage, it’s about understanding your options, weighing the trade-offs and choosing a home loan strategy that supports both your immediate goals and your long-term financial wellbeing.

After all, buying a home isn’t simply about reaching a deposit target; it’s about making a decision you can feel confident living with for years to come.