Ask ten people and you will hear ten different answers. Twenty per cent. Five per cent. Whatever the bank will take. The honest answer is that there is no single minimum, only a trade-off: the smaller your deposit, the more the loan costs you in extras and the fewer lenders will say yes.
Why twenty per cent is the number people quote
Lenders measure risk with the loan-to-value ratio, which is the loan as a share of the property's value. At 80 per cent or below, most lenders treat the loan as lower risk and do not ask you to pay for it. Go above that and lenders mortgage insurance usually enters the picture. It protects the lender, not you, and the premium is typically added to your loan. We explain how it works in our guide to lenders mortgage insurance.
So twenty per cent is not a rule. It is the point where a cost disappears and your choice of lender widens.
Buying with less than twenty per cent
Many people do, and it is a perfectly workable path. A deposit of ten per cent or even five per cent can be enough with the right lender, as long as the rest of your application is sound. What changes is the price of getting there:
- Insurance. LMI is usually payable, and the smaller the deposit, the higher it tends to be.
- Fewer options. Some lenders have tighter rules or lower maximum loans once your deposit is small.
- A larger loan. You borrow more, so you pay more interest over the life of the loan and build equity more slowly.
- Less cushion. If values dip, a small deposit leaves little room before you owe more than the property is worth.
There are government schemes that change this for eligible first home buyers, including a guarantee that lets some people buy with five per cent down without paying LMI. Eligibility, caps and rules are set by the government and do change, so check the current position. We go through it in our article on the 5 per cent deposit scheme.
What counts as a deposit
It is not only savings sitting in a bank account. Depending on the lender, a deposit can include:
- Savings you have built up over time. Lenders often want to see this saved gradually, which they call genuine savings.
- A gift from family, usually with a letter confirming it does not need to be repaid.
- Equity in a property you already own, which can fund the deposit on the next one.
- Government grants or concessions you are eligible for.
- A guarantor's help, where a family member offers their own property as additional security so you can borrow with a smaller deposit.
Each of these is treated a little differently from lender to lender, which is one of the main reasons a broker can help. A deposit that one lender questions may be accepted without fuss by another.
The costs that sit on top of the deposit
This is where first-time buyers get caught out. The deposit is only part of the cash you need on settlement day. Budget for these as well:
- Stamp duty, unless you qualify for an exemption or concession.
- Legal or conveyancing fees.
- Building and pest inspections, and sometimes a strata report.
- Lender fees and any LMI if you are paying it upfront.
- Moving costs, and a buffer for the first few months in the property.
A rough rule is to plan for the deposit plus a meaningful slice for these costs, then check the real numbers once you know the property type and price range. If you are focused on Sydney's North Shore or Northern Beaches, price ranges vary widely by suburb. Our look at what it takes to buy in Mosman, Manly and Chatswood gives a sense of the scale.
Should you wait until you have twenty per cent?
Sometimes, yes. Sometimes no. If you can reach twenty per cent in a short time, waiting may save you insurance and widen your options. If it would take years, buying sooner with a smaller deposit can make sense, because you start building equity earlier and avoid chasing a moving target if prices rise. Which way it falls depends on your savings rate, your rent, the market you are looking in and how comfortable you are with a bigger loan. It is worth running both versions properly before deciding.
Work out your own number
The right deposit is the one that gets you a loan you can comfortably carry, on a property you actually want, without stretching your finances thin. If you would like help working it out, get in touch or call 1300 001 755. We are licensed credit advisers in Forestville, working with first home buyers and upgraders across the Northern Beaches and North Shore. You can also see what you might be able to borrow in how much can I borrow.
Frequently asked questions
How much deposit do I need to buy a house in Australia?
There is no single minimum. Twenty per cent avoids lenders mortgage insurance with most lenders, but many people buy with ten per cent, five per cent or less, using LMI or a government scheme where they qualify.
Can I buy a house with a 5 per cent deposit?
Often, yes. Some lenders accept a five per cent deposit, and eligible first home buyers may use a government guarantee to avoid LMI. Rules and caps change, so check the current position.
Can family gift me the deposit?
Many lenders accept a gifted deposit, usually with a letter confirming it is a gift and does not have to be repaid. Requirements differ between lenders.
Do I need money for costs as well as the deposit?
Yes. Stamp duty, legal fees, inspections and lender fees are paid in addition to the deposit, so you need to budget for them separately.
General information only. It does not take your objectives, financial situation or needs into account, and it is not credit or financial advice. Lender policy, rates and eligibility change regularly and vary between lenders — talk to us about your own circumstances before acting on anything here.