How Much Deposit Do You Really Need? Tips for First Home Buyers

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Buying your first home is one of life’s biggest milestones, but for many Australians, saving a home loan deposit can feel like the biggest hurdle. There’s a common belief that you need a 20% deposit to get started, but is that really true?

The good news: No, you don’t always need a 20% deposit.

This blog will walk you through what lenders really require, government schemes that can help, and actionable tips for getting into your first home sooner. If you’re a first home buyer in Australia, read on to bust the myths and gain clarity on your deposit journey.

Understanding the 20% Deposit Myth

You’ve probably heard that banks require a 20% deposit for a home loan. While it’s often recommended, it’s not a rule. Let’s break it down.

What is a 20% Deposit?

A 20% deposit means you’re paying 20% of the property price upfront. For a $600,000 home, that’s $120,000. This helps reduce your loan-to-value ratio (LVR) to 80% or lower, which lenders favour.

Why is 20% Considered the Benchmark?

With a 20% deposit:

You usually avoid Lenders Mortgage Insurance (LMI).
You may get better interest rates.
It signals lower risk to the bank.

But Here’s the Reality…

Most first home buyers don’t have 20%, and many lenders accept deposits as low as 5%. It’s still possible to secure a home loan with a smaller deposit — you just need to understand your options.

How Much Deposit Do You Actually Need?

5% Deposit

Many lenders accept a 5% deposit, especially for first home buyers. On a $600,000 home, that’s $30,000.

Tip: The deposit must be genuine savings in many cases (e.g., saved over 3+ months).

10% Deposit

With a 10% deposit, you may access a broader range of lenders and reduce your LMI costs compared to 5%.

15-19% Deposit

This range can improve your borrowing power and reduce LMI premiums.

20% or More

Ideal but not mandatory. This is often the point where LMI is waived completely, and interest rates are most competitive.

What is Lenders Mortgage Insurance (LMI)?

LMI is an insurance policy that protects the lender if you default on your loan. It doesn’t protect the borrower but can allow you to buy with less than a 20% deposit.

How Much Does LMI Cost?

LMI costs vary based on your deposit size, property value, and lender. It can range from a few thousand dollars to tens of thousands.

Example: On a $600,000 property with a 10% deposit, LMI could cost around $10,000.

Can You Avoid LMI?

Yes, through:

A 20% deposit.
A guarantor loan (e.g., using equity from a parent’s property).
Eligible government schemes (see below).

Government Schemes That Can Help First Home Buyers

First Home Guarantee (FHBG)

Allows eligible first home buyers to purchase with just a 5% deposit, without paying LMI. The government guarantees up to 15% of the loan.

First Home Owner Grant (FHOG)

A one-off payment (up to $10,000 depending on your state) for buying or building a new home.

First Home Super Saver Scheme (FHSSS)

Lets you save for your deposit using your superannuation, potentially saving on tax and boosting your deposit amount.

Stamp Duty Concessions

Many states offer discounts or full exemptions for first home buyers, reducing upfront costs.

Realistic Deposit Scenarios for First Home Buyers

Let’s say you’re looking at a home priced at $600,000. Here’s how the deposit and LMI scenarios may play out:

Tips to Help First Home Buyers Save and Navigate Deposits

1. Work with a Mortgage Broker

A broker like Triple O Finance can help you find lenders who accept low deposits and guide you through government schemes.

2. Use the First Home Super Saver Scheme

Contribute extra to your super and later withdraw it to use as a deposit — with tax benefits.

3. Explore Guarantor Loan Options

If your parents or a close family member can offer equity in their home, you could buy with no deposit or avoid LMI.

4. Budget and Automate Your Savings

Set up an automated deposit into a high-interest savings account or offset account to grow your deposit faster.

5. Understand the Full Upfront Costs

Besides the deposit, you’ll need funds for:

Stamp duty (unless exempt)
Legal fees
Building/pest inspection
Loan application fees (sometimes waived)

6. Keep Your Credit Clean

Pay your bills on time and avoid unnecessary debts. A good credit score boosts your chances of approval with a lower deposit.

Final Thoughts: How Much is Enough?

There’s no one-size-fits-all deposit requirement. Whether you’re aiming for 5%, 10%, or 20%, the most important thing is understanding your borrowing power, eligibility for schemes, and total upfront costs.

Thanks to a variety of low deposit options and government support, the 20% rule is more of a guideline than a necessity.

With expert help from a broker like Triple O Finance, you can build a tailored strategy that gets you into your first home sooner than you think.