First Home Buyers: Deposit Guide 101

If you’re saving for your first home, you’ve probably heard that you need a 20% deposit to purchase a home and if that sounds like a mountain to climb, you’re not alone!

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The good news? You don’t need a 20% deposit to buy your first home.

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In fact, there are a range of options available to help first home buyers get into the market sooner, some requiring a deposit with as little as 5% or even 2% saved.

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Let’s break down how much deposit you actually need, and what that means for you.

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What Is a Deposit and Why Does It Matter?

A deposit is the upfront amount you contribute toward the purchase of your home. The larger the deposit, the less you need to borrow form the bank, which can help reduce your interest rate applicable (i.e., tier) and repayments.

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Lenders use your deposit size as a measure of risk. The smaller your deposit, the higher the risk for the bank. Think of it this way, if you stopped making repayments, could the bank quickly sell the property and recover what they lent you? The less equity you put in upfront, the less buffer the bank has if the property sells for less than expected, which is where a fee called "Lenders Mortgage Insurance" (LMI) comes into play.

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Not everyone pays LMI, but it usually applies when you borrow more than 80% of the property’s value. It’s an insurance policy that protects the bank, not you. The cost can run into the tens of thousands of dollars, and while sometimes added to your loan, it’s ultimately an extra fee you’re paying on top of everything else.”

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Can you avoid this fee? Yes, it is avoidable with some options further down below.

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What Are Your Deposit Options?

Below are the most typical deposit ranges available to first home buyers. Each of these options generally includes paying LMI. In some instances, LMI fees can be waived, with options covered further down.

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20% Deposit or More - No LMI Incurred:

If you can save a 20% deposit, that’s ideal. Here you’ll:

• Avoid LMI – Save yourself thousands by steering clear of costly Lenders Mortgage Insurance.
• Access Better Rates – A higher deposit opens the door to sharper, more competitive interest rates, which means lower monthly repayments compared to low-deposit loans.
• Be Seen as Low-Risk – With more equity upfront, lenders see you as a safer borrower, so your application is usually assessed more favourably and with less scrutiny.

For a $700,000 property, this means you’d need $140,000 as a deposit (plus stamp duty and other upfront costs on top of your deposit). ‍

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5-10% Deposit - LMI Incurred:

With a 5-10% deposit, many lenders will still consider your loan application, though you’ll typically need to pay LMI unless you qualify for a waiver (outlined in the next heading). While this can help you enter the property market sooner, it’s important to be aware of the following:

• LMI Costs  – LMI fee incurred, payable either upfront or added to your loan balance, though adding it increases your Loan-to-Value Ratio (LVR).‍
• Higher Interest Rates – A smaller deposit is viewed as higher risk, so expect your loan to attract a higher rates compared to borrowers with a larger deposit.‍

Depending on the loan size and lender, LMI can range from a few thousand dollars to over $30,000, so it’s important to weigh up the costs.

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0% Deposit - LMI Incurred:

Borrowing 100% of a property’s purchase price is considered very high risk by lenders. It’s important to clearly understand the implications before proceeding:

• Limited Lender Options – Most major banks won’t support this type of lending. These loans are typically only available through smaller, second-tier lenders.
• High LMI Costs – Expect significantly higher Lenders Mortgage Insurance premiums.
• Additional Fees – Many lenders charge extra fees specifically for 0% deposit lending.
• Higher Interest Rates – Rates are generally less competitive compared to standard home loans.
• High LVR for Longer – With no deposit, you’ll carry a very high loan-to-value ratio for some time.

Before considering a 0% deposit loan, it’s essential to speak with one of our experts and have a clear exit strategy in place. This ensures you’re prepared in the event of financial difficulty or unexpected changes in your circumstances.

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These loans are designed for very specific circumstances. A common example is where an individual is unable to obtain an LMI waiver through the usual channels, but has recently secured a significant increase in income (sometimes nearly double their previous earnings) while still having minimal savings.

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Low Deposit Options with LMI Waived?

While most low-deposit loans attract Lenders Mortgage Insurance (LMI), there are specific pathways where this cost can be avoided. The most common include:

1. First Home Guarntee Scheme
2. Professional LMI Waivers
3. Family Guarantor Loans

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FIrst Home Gaurantee Scheme

A government-backed initiative that allows eligible first home buyers to purchase a property with as little as 5% deposit without paying LMI. Not a cash grant, rather a guarantor over your property.

• Eligibility: Must meet applicant criteria and there are restirctions around property price thresholds (which vary by state/territory).
• Benefit: Enter the market sooner with a smaller deposit while avoiding thousands in LMI.
• Consideration: Restrictions around property purpose (e.g., cannot list as an investment).
• Interest Rate: In most cases, you can expect competitive rates based on 80% lending rather than 95% lending (difference of 1-1.5% in some instances).

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Professional LMI Waivers

Some major lenders offer LMI waivers for specific professionals due to the stability and high earning potential of these roles.

• Eligible Professions: Typically includes doctors, dentists, lawyers, accountants, and some specialists.
• Benefit: Borrow up to 90–95% LVR without paying LMI, saving tens of thousands.
• Consideration: Proof of current professional membership/registration is usually required.
• ‍Interest Rate: In most cases, you can expect competitive rates based on 80% lending rather than 95% lending (however, not all banks base it off this - some only waive the LMI fee).

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Family Guarantor Loans

A family member (often a parent) provides security by using the equity in their own property. Here, it’s crucial that we sit down with your parents to ensure they fully understand both their responsibilities and the potential risks involved in acting as guarantors. They will also need to consult with a lawyer to obtain independent legal advice before proceeding.

• Benefit: Avoid LMI even with a low deposit, and potentially borrow up to 100% of the purchase price.
• Consideration: The guarantor takes on legal and financial responsibility if repayments are not met. It’s essential both parties fully understand the risks.‍
• Interest Rate: Expect competitive rates based on 80% lending rather than 95-100% lending (difference of 1-2.5% in some instances).

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Should We Consider Anything Else?

Your deposit doesn’t cover everything. Alongside saving for your deposit, you’ll also need to budget for:

• Stamp duty (unless eligible for exemptions)
• Transfer and registration fees
• Conveyancing/legal costs
• Council rates and adjustments
• Independent legal advice (if required)

Other common expenses include:

• Building and pest inspections
• Loan set-up and application fees
• Moving costs

Expert Tip: When planning your budget, aim to have an extra 3–5% on top of your deposit. This ensures you can comfortably cover upfront costs and still manage your loan repayments.

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How Can We Help?

In most cases, after just a 5-minute chat with one of our specialist brokers, we’ll be able to quickly identify the path that best suits you and explain why.

So, if you’re ready to get started, simply give us a call or send through an enquiry today.

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