Ask most Australians how much deposit you need to buy a home and they'll say 20%. It's a number so often repeated that it's become received wisdom. But it's not the whole picture — and for first home buyers, understanding the alternatives can mean the difference between buying now and waiting years longer than necessary.
Where the 20% Rule Comes From
The 20% figure is the threshold at which most lenders will approve a home loan without requiring Lenders Mortgage Insurance (LMI). When you borrow more than 80% of a property's value, lenders consider the loan higher risk. To protect themselves, they require you to pay for an insurance policy — LMI — that covers the lender (not you) in the event you default and the sale of the property doesn't cover what you owe.
So the 20% rule isn't a legal requirement. It's the point at which you avoid an additional cost. Whether avoiding that cost is worth waiting an extra three to five years to save is a very different calculation.
What Is LMI and How Much Does It Cost?
Lenders Mortgage Insurance is a one-off premium paid to an insurer (typically Genworth or QBE) that protects your lender. Despite the name, it offers zero protection to you as the borrower. If you default and there's a shortfall after the property is sold, the insurer covers the lender — and can then pursue you for that shortfall.
LMI costs vary based on the loan amount and the Loan-to-Value Ratio (LVR). As a rough guide:
- On a $600,000 loan at 90% LVR (10% deposit), LMI is typically around $9,000–$12,000
- On a $600,000 loan at 95% LVR (5% deposit), LMI can be $18,000–$25,000
The good news is that LMI can usually be capitalised — that is, added onto your loan balance rather than paid upfront. You pay it off gradually as part of your mortgage, though you will pay interest on it over the life of the loan.
Buying With Less Than 20%: Your Options
Saving a full 20% deposit in a rising market is increasingly difficult for first home buyers. The good news is that there are several legitimate paths to enter the market sooner:
5% Deposit With LMI
Most lenders will approve a home loan with as little as 5% genuine savings as a deposit. You will pay LMI, but you get into the market faster. Depending on how quickly property prices are moving in your target area, this trade-off can make strong financial sense.
10% Deposit for a Better LMI Rate
A 10% deposit (90% LVR) attracts significantly lower LMI than a 5% deposit. If you're close to 10% but not quite at 20%, it may be worth holding off a little longer to reach that 10% mark and materially reduce your LMI cost.
The First Home Guarantee (No LMI With 5% Deposit)
The federal government's First Home Guarantee (formerly known as the First Home Loan Deposit Scheme) allows eligible first home buyers to purchase with as little as a 5% deposit and without paying LMI. The government acts as guarantor for up to 15% of the purchase price, covering the lender's risk — at no cost to the buyer.
Key eligibility criteria include:
- Australian citizen or permanent resident
- Income cap: $125,000 per year for singles, $200,000 for couples (combined)
- Property price caps vary by location — in Melbourne, the cap is $800,000
- Must be a first home buyer who has not previously owned property in Australia
- Must intend to live in the property (not an investment purchase)
- Places are limited — the scheme releases new allocations each financial year
Your broker can confirm whether you qualify and, if so, which participating lenders on our panel can process your application under the scheme.
The Family Home Guarantee
The Family Home Guarantee is a related federal scheme specifically for eligible single parents with at least one dependent child. It allows purchase with as little as a 2% deposit, with the government guaranteeing up to 18% of the purchase price. This scheme has its own annual allocation of places and the same property price caps apply.
Guarantor Loans
If you have parents or close family members who own property with available equity, a guarantor loan can allow you to purchase without a deposit at all — and without paying LMI. The guarantor uses a portion of their property's equity as additional security for your loan. This reduces your effective LVR below 80%, eliminating the LMI requirement.
Guarantor arrangements should always be entered into carefully. The guarantor takes on real financial risk, so it's essential all parties understand the obligations involved. A broker can help structure the guarantee correctly and limit the guarantor's exposure to a specific portion of the loan.
The First Home Super Saver Scheme (FHSS)
The FHSS allows first home buyers to make voluntary contributions to their superannuation and then withdraw those contributions (plus earnings) to use as a home deposit. Contributions are taxed at the super rate of 15% rather than your marginal income tax rate, which can deliver a meaningful tax saving over a savings period of two to three years. You can withdraw up to $50,000 under the scheme. Your broker or financial adviser can explain whether this strategy suits your situation.
Stamp Duty in Victoria
In Victoria, first home buyers receive significant stamp duty concessions that reduce your upfront costs materially:
- Properties valued up to $600,000: zero stamp duty
- Properties valued between $600,001 and $750,000: a concession that tapers off
- Above $750,000: standard stamp duty applies
On a $580,000 purchase, this concession alone saves you approximately $31,000 compared to a non-first-home-buyer purchaser.
Beyond the Deposit: Other Costs to Plan For
Your deposit isn't the only upfront cost. Make sure you also budget for:
- Conveyancing fees: typically $1,200–$2,500 for a property purchase in Victoria
- Building and pest inspection: $400–$700 and strongly recommended before unconditional exchange
- Lender application and settlement fees: vary by lender, some charge nothing
- Mortgage registration and transfer fees: small government charges, usually a few hundred dollars
- Moving costs and initial home setup expenses
With the First Home Guarantee, eligible first home buyers can purchase with just a 5% deposit and avoid LMI entirely — saving thousands at settlement. A broker can confirm if you qualify and help you apply through a participating lender on your behalf.
The bottom line: you do not need to save a 20% deposit to buy your first home. Depending on your income, the property you're targeting, and your family situation, you may be able to enter the market with considerably less — and with the right structuring, avoid significant additional costs in the process. Talk to our team to understand exactly where you stand.