How much deposit do you need for a first home in Australia?

Introduction:

For Australian home buyers, most lenders require a 20% deposit to avoid Lenders Mortgage Insurance. However, some buyers can purchase a property with deposits as low as 5%, particularly through government first-home buyer schemes. For example, on a $700,000 home a 20% deposit would be $140,000, while a 5% deposit would be $35,000.

Key points:

• A 20% deposit avoids Lenders Mortgage Insurance
• Some buyers can purchase with 5–10% deposits
• LMI can add thousands to borrowing costs
• Compare repayments with current rent before buying

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For many Australians, saving a deposit is the biggest barrier to buying a first home.

Thirty years ago the hurdle was significantly lower. In the early 1990s, the median house price in many Australian cities was often three to four times the average household income. Today, in several major markets, that ratio is six to nine times income or more, which means the size of the deposit required has increased dramatically.

As property prices have risen faster than wages in many parts of the country, first home buyers often find themselves spending years saving just to reach the starting line. Understanding how much deposit you actually need – and what options exist for smaller deposits – is one of the first steps in planning a purchase.

If you are considering buying your first property, our guide to First Home Buyer Home Loans in Australia explains how deposits, borrowing capacity and government programs influence the home loan process.

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What Deposit Do You Need to Buy a House in Australia?

Traditionally, lenders preferred borrowers to provide a 20% deposit when purchasing a property.

Example Deposit Amounts for a $700,000 Property

With a 20% deposit, borrowers can usually avoid paying Lenders Mortgage Insurance (LMI), which is an insurance premium charged on loans with smaller deposits.

However, the reality is that many first home buyers enter the market with deposits between 5% and 10%, especially when government programs are available to assist with low-deposit purchases.

Can You Buy a Home with a 5% Deposit in Australia?

Yes, some lenders allow first home buyers to purchase property with deposits as small as 5% of the property value.

However, when deposits are below 20%, lenders usually require Lenders Mortgage Insurance (LMI). This insurance protects the lender if the borrower cannot repay the loan.

Depending on the loan size, LMI can add several thousand dollars to the total cost of borrowing.

Government programs such as the First Home Guarantee can sometimes allow eligible buyers to purchase with a 5% deposit without paying LMI, because the government guarantees part of the loan.

What Other Costs Do First Home Buyers Need to Budget For?

One common misconception among first home buyers is that the deposit is the only amount they need to save.

In reality, buyers must also budget for additional costs such as:

• stamp duty (in states where concessions do not apply)
• legal or conveyancing fees
• building and pest inspections
• loan application fees
• moving costs

These expenses can easily add several thousand dollars to the upfront cost of buying a property.

Because of this, many financial advisers suggest keeping a small financial buffer even after paying the deposit.

Can you afford the mortgage repayments?

Saving a deposit is only part of the equation. Buyers must also be confident they can comfortably manage the monthly mortgage repayments.

One practical way to think about this is to compare potential loan repayments with what you currently pay in rent.

For example, if your rent is $2,200 per month and your estimated mortgage repayment would be around $2,400 per month, the difference may not be as large as many people expect.

Of course, home ownership also comes with additional costs such as maintenance, insurance and council rates, so buyers should consider the full financial picture.

Still, for some households the comparison between rent and mortgage repayments can provide a useful starting point when deciding whether buying might be realistic.

Preparing for Your First Home Loan: Steps You Can Take Now

Beyond deposits and repayments, there are several factors that many buyers only learn about during the home loan process.

Lenders assess your living expenses

Banks now examine a borrower’s spending habits closely. Regular expenses, subscriptions, and existing debts can all affect borrowing capacity.

Interest rate buffers apply

Even if your home loan interest rate is 6%, lenders may assess whether you could still afford repayments if rates were 2–3 percentage points higher.

This means the amount you can borrow is often lower than buyers initially expect.

A larger deposit can reduce interest costs

A bigger deposit not only avoids LMI, it also reduces the loan size. Over the life of a mortgage, even a slightly smaller loan can save tens of thousands of dollars in interest.

Government programs can change the equation

First home buyers may qualify for assistance programs such as:

• the First Home Owner Grant
• the First Home Guarantee
• stamp duty concessions in some states

These programs can significantly reduce the upfront costs of entering the property market.

How to prepare yourself for your first home loan

Before applying for a mortgage, lenders will look closely at your financial habits. Even small changes in spending behaviour can improve your chances of approval and sometimes increase the amount you are able to borrow.

If you are planning to apply for a home loan in the next year or two, there are several steps that can help strengthen your financial position.

Review Your Spending and Subscriptions

Lenders typically examine several months of bank statements when assessing a home loan application. They want to see that your spending is consistent and manageable.

It can be helpful to go through your expenses and identify areas where spending can be reduced. Subscription services, streaming platforms, gym memberships and other recurring payments can quietly add up over time.

Reducing unnecessary expenses not only helps you save for a deposit, it also demonstrates responsible financial behaviour to lenders.

Reduce Credit Cards and Buy Now Pay Later Debt

Buy Now Pay Later services and credit cards can significantly affect borrowing capacity. Even if balances are small, lenders often treat these facilities as ongoing liabilities.

Closing unused credit cards or reducing available limits may improve how lenders assess your financial position.

Similarly, paying down personal loans or short-term debts can strengthen a home loan application.

Build a consistent savings record

Banks like to see evidence that borrowers can save money regularly. A consistent savings history shows that you can manage repayments once the loan begins.

Some lenders refer to this as “genuine savings”, meaning money that has been accumulated gradually rather than received as a one-off gift.

Avoid large unexplained expenses

Large or irregular purchases shortly before applying for a loan can sometimes raise questions during the lending assessment process.

In the months leading up to a mortgage application, it may be wise to avoid unnecessary major expenses so that your financial history appears stable and predictable.

Understand your borrowing capacity early

Many first home buyers wait until they are ready to purchase before speaking to a lender or broker.

However, understanding your borrowing capacity earlier can help you set realistic expectations about property prices, deposits and monthly repayments.

This can also highlight areas where financial adjustments may increase the amount you are able to borrow.

A small shift in habits can make a big difference

Preparing for a home loan is not just about saving a deposit. It is also about demonstrating financial stability and responsible spending.

Even modest changes – reducing discretionary expenses, paying down short-term debt and building consistent savings – can make a meaningful difference when lenders assess a home loan application.

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Is it better to wait for a larger deposit?

This is one of the most debated questions among first home buyers.

Waiting longer may allow buyers to:

• save a larger deposit
• reduce the loan amount
• avoid Lenders Mortgage Insurance

However, if property prices continue to rise faster than savings, waiting may also mean needing an even larger deposit later.

Because every buyer’s financial situation is different, the best approach is often to understand the available options, compare repayments carefully, and seek professional advice before making a decision.

The bottom line

While a 20% deposit remains the traditional benchmark for home loans, many Australians now enter the property market with smaller deposits, particularly when government programs are available.

Understanding how deposits affect borrowing capacity, insurance costs, and repayments can help first home buyers make more informed decisions about when and how to buy their first property.