How much deposit do I need to buy a house in Australia?

It is the first question almost every buyer asks, and the answer is not a single figure. How much deposit you need depends on the lender, the loan to value ratio you are comfortable with, and whether you qualify for any schemes. Here is how to think about it without getting lost in numbers.

Why 20 per cent is the benchmark

The figure you hear most often is 20 per cent of the purchase price. That is not a legal minimum, it is the level at which most lenders will lend without charging Lenders Mortgage Insurance. At 20 per cent your loan to value ratio is 80 per cent, which lenders treat as lower risk, so it tends to mean no insurance premium and access to the widest range of products.

You can usually buy with less

A 20 per cent deposit is a benchmark, not a requirement. Many lenders will lend with a deposit of 10 per cent, and some down to 5 per cent, for borrowers who otherwise qualify. The trade off is that below 20 per cent you generally pay Lenders Mortgage Insurance, which protects the lender, not you, and can add a meaningful cost to the loan.

Ways to buy below 20 per cent without insurance

There are routes to a smaller deposit without paying Lenders Mortgage Insurance. Eligible first home buyers may use a government guarantee, where the government guarantees part of the loan so the lender does not require insurance. A family guarantor can serve a similar purpose by securing part of the loan against their own property. Some lenders also waive insurance for certain professions.

Lenders usually want genuine savings

Many lenders want to see that some of your deposit is genuine savings, money you have saved over time rather than only a recent gift or windfall. The usual guide is savings built up over around three months. A gift from family can often still be used, but lenders may treat it differently to savings, so it is worth checking the policy before you rely on it.

The deposit is not the only cash you need

A common trap is budgeting only for the deposit. On top of it you generally need funds for purchase costs, which can include stamp duty where it applies, conveyancing or legal fees, building and pest inspections, loan establishment fees, and moving costs. These are separate from the deposit and need to be planned for so you are not caught short at settlement.

How the deposit affects your rate

The size of your deposit can affect the interest rate you are offered. Lenders price loans in loan to value ratio bands, and a lower loan to value ratio, meaning a larger deposit, can attract a sharper rate with some lenders. So a bigger deposit can help twice, by avoiding insurance and by improving the rate.

Bigger deposit versus buying sooner

There is a genuine trade off between saving longer for a larger deposit and buying sooner with a smaller one. A larger deposit means less to borrow and no insurance, but it can mean more time renting and exposure to rising prices. A smaller deposit gets you in sooner but usually with insurance or a scheme. The right balance depends on your circumstances.

Work out your real number

Because the answer depends on the lender, the scheme you may qualify for, and your costs, the useful next step is to map your actual position rather than a rule of thumb. A broker can tell you the minimum deposit you realistically need across different lenders and whether a guarantee or guarantor could remove the insurance, usually at no cost to you.