How much deposit do you really need to buy a home?

Ask five people how much deposit you need and you’ll hear the same answer: 20%. It’s a useful benchmark — but treating it as a hard rule keeps plenty of would-be buyers renting for years longer than necessary. Here’s how deposits actually work, and the paths buyers use to purchase with less.

Why 20% is the benchmark

Lenders describe loans by their loan-to-value ratio (LVR) — the loan amount as a percentage of the property’s value. Borrow $480,000 against a $600,000 home and your LVR is 80%.

At or below 80% LVR, lenders consider the loan lower-risk, and you generally avoid lenders mortgage insurance (LMI). Above 80%, LMI usually applies. That’s the whole story behind the 20% rule: it’s the LMI threshold, not a legal minimum.

What your deposit actually needs to cover

Your savings need to stretch beyond the deposit itself:

• Stamp duty — a state tax that varies with price and buyer type. First home buyers in Victoria may receive an exemption or concession depending on the purchase price and current rules.
• Conveyancing and legal fees
• Building and pest inspections
• Lender and government fees at settlement
• A buffer — moving costs, immediate repairs, and simple peace of mind.

A workable budget counts all of it, which is why “we have $60,000 saved” doesn’t translate directly to a deposit figure without doing the sums.

Path 1: Buy with less than 20% and pay LMI

LMI protects the lender — not you — if the loan defaults. It’s a one-off premium that can usually be added to the loan. The cost rises with your LVR and loan size, and it can be substantial.

Paying LMI isn’t automatically bad. If prices in your target area are rising faster than you can save the difference, buying sooner with LMI can leave you ahead. That’s a personal calculation, and one worth doing with real numbers rather than vibes.

Some professions are also eligible for LMI waivers with certain lenders at higher LVRs — worth checking before assuming you’ll pay.

Path 2: A guarantor

A family member — usually a parent — offers part of the equity in their own property as additional security. Done well, this can let you borrow with little or no cash deposit and avoid LMI entirely.

The obligations are real: the guarantor’s property is partly on the line until the guarantee is released, typically once your LVR drops below 80%. Everyone involved should understand the arrangement fully, and guarantors should seek their own advice before signing.

Path 3: Government low-deposit schemes

Federal and state schemes periodically allow eligible buyers to purchase with deposits as low as 5% (sometimes lower for specific groups) without paying LMI, with the government guaranteeing part of the loan.

Eligibility rules, income caps, property price caps and available places change regularly — sometimes between federal budgets. Rather than quote thresholds that may be stale by the time you read this, our honest advice is: have your eligibility checked against the current criteria when you’re ready to apply. It takes a broker minutes.

So what’s the right number for you?

It depends on the property price, your income, the path you take, and your timeline. A realistic session with a broker turns “we should save more” into “we need $X by roughly Y, and here’s the path” — which is a far easier target to hit.

This article is general information only and doesn’t consider your personal circumstances. Lending criteria and government scheme rules apply and change over time.