How much deposit you actually need

“Twenty per cent” is the number everyone repeats. It is a useful target and a terrible deadline — for many first home buyers, the rent paid and the price growth missed while saving to 20% costs more than the mortgage insurance would have. Here is how to work out which side of that line you are on.

Why 20% matters

At an 80% loan-to-value ratio or below, three things happen:

1. No Lenders Mortgage Insurance. This is the big one.
2. Better rates. Most competitive products cap out at 80% LVR.
3. More lenders will consider you, which means more competition for your loan.

What LMI costs below 20%

Lenders Mortgage Insurance protects the lender if you default. You pay for it. The cost rises sharply as your deposit shrinks — on a $600,000 purchase, very roughly:

Deposit	Loan	Indicative LMI
20% ($120,000)	$480,000	nil
15% ($90,000)	$510,000	~$6,000
10% ($60,000)	$540,000	~$12,000
5% ($30,000)	$570,000	~$25,000

Premiums vary by lender, loan size and LVR — treat these as orders of magnitude, not quotes. LMI is usually capitalised, meaning it gets added to your loan and you pay interest on it for the life of the loan. A $25,000 premium at 6% over 30 years costs far more than $25,000.

The jump from 10% to 5% is brutal. If you are close to 10%, the wait is often worth it. If you are close to 20%, definitely.

The costs beyond the deposit

Budget 4–6% of the purchase price on top of your deposit:

• Stamp duty — the largest, though first home buyers are exempt or concessional in every state up to certain price caps. Check your state revenue office; the thresholds move.
• Conveyancing or solicitor — $1,200–$2,500
• Building and pest inspection — $400–$800, and do not skip it
• Loan application and valuation fees — $0–$800
• Mortgage registration and transfer — a few hundred
• Moving and immediate essentials — always more than expected

Running out of cash at settlement is a real and avoidable problem.

Genuine savings

Most lenders want to see that 5% of the purchase price has been saved over at least three months, rather than appearing suddenly. Rental payment history can sometimes substitute. Gifts from family are usually acceptable but often need a statutory declaration confirming the money is not repayable — and if it is repayable, it counts as a debt against your serviceability.

Schemes worth knowing about

These change regularly and eligibility is specific, so confirm current details with the administering body before relying on them.

• First Home Guarantee — lets eligible first home buyers purchase with as little as 5% deposit with the government guaranteeing the balance, so no LMI. Places are capped and there are property price limits by region. For those who qualify, this is by far the most valuable option available: it removes the single biggest cost of a small deposit.
• First Home Super Saver Scheme — lets you make voluntary super contributions and withdraw them for a deposit, benefiting from the concessional tax treatment. Requires planning well ahead; withdrawal takes time.
• State grants and stamp duty concessions — vary substantially by state and by whether the property is new or established.
• Shared equity schemes — available in some states; the government takes a stake in the property in exchange for reducing what you need to borrow.

A worked comparison

Buying a $600,000 home, with $60,000 saved:

Option A — buy now at 10% deposit. Loan $540,000 plus roughly $12,000 LMI capitalised = $552,000. At 5.8% over 30 years that is about $3,240 a month.

Option B — wait 18 months to reach 20%. You need $120,000, so another $60,000 saved — around $3,300 a month, on top of rent. Meanwhile the property may have appreciated, raising the target.

Option C — buy now under the First Home Guarantee at 5%. $30,000 deposit, $570,000 loan, no LMI. You keep $30,000 in reserve and avoid the premium entirely.

For anyone eligible, Option C usually wins clearly. Between A and B, the answer depends on whether prices in your area are moving faster than you can save — and nobody knows that reliably.

Where to start

Work out your realistic maximum with the borrowing power calculator, then look at loans that accept smaller deposits. Check your state’s first home buyer page for current concessions before you set a savings target — the stamp duty exemption alone often changes the number you need.