If you’ve ever stalled your home-buying plans because you thought you needed a 20% deposit, you’re not alone, and you’re also not stuck. Many first home buyers purchase property with far less than that.
How much deposit you actually need depends on the property’s price, your borrowing power, the lender’s requirements, and whether you qualify for government assistance. For some buyers, 5% is enough. For others, a bigger deposit makes more financial sense.
This lesson breaks down how deposits work, what Loan-to-Value Ratio means for your application, and what to budget for beyond the deposit itself.
What Is A Deposit?
A deposit is the portion of the property’s purchase price you contribute yourself. The lender generally funds the rest through a home loan.
Definition
Deposit: The amount of a property’s purchase price paid using your own funds, with the lender financing the remaining balance through a home loan.
| Item | Rate Used |
| Property purchase price | $700,000 |
| Your deposit | $70,000 |
| Loan required | $630,000 |
In this example, the buyer contributes 10% of the purchase price while the lender funds the remaining 90%. Generally, the larger your deposit, the less you need to borrow.
Why Do Lenders Require A Deposit?
A deposit shows a lender two things: that you can manage money responsibly, and that the loan carries less risk because you’re borrowing a smaller share of the property’s value.
Why A Bigger Deposit Helps
What Is Loan-To-Value Ratio (LVR)?
LVR measures how much of the property’s value you’re borrowing, expressed as a percentage.
FORMULA
LVR = Loan Amount ÷ Property Value × 100
| Item | Rate Used |
| Property value | $600,000 |
| Loan amount | $540,000 |
| LVR | 90% |
This borrower is financing 90% of the property’s value and contributing a 10% deposit. LVR affects lender risk, loan eligibility, interest rate options, and whether Lenders Mortgage Insurance applies.
Lenders Mortgage Insurance generally protects the lender, not you, but it’s usually the borrower who pays the premium when LVR rises above 80%.
How Much Deposit Do You Actually Need?
There’s no single right answer. It depends on your goals, your borrowing power, and whether government assistance applies to you.
Buying With A 5% Deposit
Many first home buyers are surprised to learn a 5% deposit may be possible, especially with eligible government assistance.
| Item | Rate Used |
| Property price | $650,000 |
| 5% deposit | $32,500 |
| Loan required | $617,500 |
Buying With A 10% Deposit
A 10% deposit is a common target for first home buyers, generally improving affordability and lending options.
| Item | Rate Used |
| Property price | $650,000 |
| 10% deposit | $65,000 |
| Loan required | $585,000 |
Buying With A 20% Deposit
A 20% deposit is often seen as the traditional benchmark, but waiting years to reach it isn’t always the best strategy if property prices keep rising.
| Item | Rate Used |
| Property price | $650,000 |
| 20% deposit | $130,000 |
| Loan required | $520,000 |
The goal should not simply be purchasing as soon as possible. The goal should be purchasing sustainably and comfortably.
Believing a 20% deposit is always required. Many buyers purchase sooner with a smaller deposit, particularly when government schemes apply.
Can The First Home Owner Grant Help With Your Deposit?
Not automatically. How the grant is treated depends on your lender and loan structure.
The grant may help by reducing upfront costs or increasing available funds, but it generally doesn’t replace the deposit a lender expects you to contribute yourself.
What Are Genuine Savings?
Genuine savings are funds built up gradually over time, rather than appearing suddenly before an application.
Definition
Genuine Savings: Money accumulated gradually through consistent saving behaviour, such as regular account contributions, term deposits, shares or managed investments.
Genuine savings requirements have historically been more common on high-LVR loans. Policies vary today, but demonstrating consistent saving can still strengthen an application.
Where Can Your Deposit Funds Come From?
Personal Savings
- The most common source
- Lenders favour consistent saving history
- More income available for repayments
Family Gifts
- May be acceptable if requirements are met
- Documentation confirming no repayment is often required
First Home Super Saver Scheme
- Voluntary super contributions may assist eligible buyers
- Covered in more detail in a later lesson
Equity From Other Assets
- Funds from selling investments or other assets
- Situational, depending on individual circumstances
What Costs Come Beyond The Deposit?
One of the biggest mistakes first home buyers make is focusing only on the deposit. Several other costs need to be budgeted for.
Budget for purchase costs separately from your deposit. Using every available dollar as deposit can leave you short when stamp duty and legal fees fall due.
How Can You Save A Deposit Faster?
Saving a deposit is often the hardest part of buying a first home. A few strategies tend to help.
Not sure where you stand?
A mortgage broker can walk through your numbers and explain what different lenders may offer based on your situation.
Real Example: Comparing Different Deposit Sizes
Imagine three buyers purchasing the same $700,000 property with different deposit sizes.
Buyer A – 5%
- Deposit: $35,000
- Loan: $665,000
Buyer B – 10%
- Deposit: $70,000
- Loan: $630,000
Buyer C – 20%
- Deposit: $140,000
- Loan: $560,000
Each buyer enters the market differently, and the right approach depends on financial goals, income, borrowing capacity, timeframe and eligibility for assistance programs. There’s no single deposit strategy that suits everyone.
Common Deposit Mistakes First Home Buyers Make
- Believing a 20% deposit is always required
- Using every dollar as deposit, with no emergency fund left
- Ignoring additional purchase costs like stamp duty and legal fees
- Waiting years without a clear savings or eligibility strategy
Quick Knowledge Check
What does LVR measure?
Explanation appears here.
Lesson Complete!
Great work! Let’s see how well you understood deposits, LVR and genuine savings.
Lesson Summary
- ✓ A larger deposit generally results in a lower Loan-to-Value Ratio (LVR).
- ✓ Genuine savings demonstrate consistent financial discipline.
- ✓ Government grants may assist with purchasing costs but don’t always satisfy deposit requirements.
- ✓ Understanding your deposit strategy can improve your home loan options.
Summary
A 20% deposit isn’t a strict requirement to buy your first home. Many Australians purchase with 5% or 10% deposits, especially when government assistance schemes apply, though a larger deposit can still offer real benefits like lower repayments and reduced LMI risk.
Understanding LVR, genuine savings, where your deposit funds can come from, and the additional costs beyond the deposit itself will help you walk into your application prepared rather than caught off guard.
Frequently Asked Questions
Want to see how different deposit sizes affect your loan and repayments?
Key Takeaways
Continue Learning
Government Grants And Schemes For First Home Buyers
Next, we’ll explore the First Home Owner Grant, First Home Guarantee and First Home Super Saver Scheme, and how each may help eligible buyers achieve home ownership sooner.
Lesson 3 · Approx. 5 min read