How much you do you really need for a house deposit?

Saving for your first home? Find out how much deposit is really enough.

  • 11 November 2021

    There’s much to think about and a lot of numbers to crunch when you’re looking to buy a property, especially when it’s your first home. One thing that can be hard to know for sure is when to stop saving and start looking to buy. In other words, how much is actually enough when it comes to a house deposit?

    Let’s break it down…

    A happy young woman researches home loans on an armchair while sipping coffee

    It is possible to borrow with as little as 5 or 10% deposit, but banks and financial institutions usually recommend saving a deposit that’s at least 20% of a property’s purchase price, otherwise known as the Loan to Value Ratio (LVR). Bank-speak aside, it just means if you were looking to buy a property around the $500,000 mark for example, you’d need to save at least $100,000 for a 20% deposit.

    So why is 20% the magic number?

    A bigger deposit will help increase the likelihood of your home loan being approved because the less you need to borrow, the lower the risk generally is for the lender.
    And since you won’t need to borrow as much, it means you’ll pay less interest over the life of your loan too. Definitely a plus! Having 20% or more also means avoiding additional costs such as Lenders Mortgage Insurance (LMI).

    What’s LMI?

    LMI is an insurance policy taken out by a lender to protect them in the event that the borrower isn’t able to keep up with their home loan repayments. It will cover the shortfall if the lender has to sell the property, and the proceeds don’t fully cover the balance owing on the loan. Lenders will usually ask you to pay LMI if your deposit is less than 20%, which could amount to thousands of dollars, payable either upfront or rolled into your total loan amount. You can find out more about Lenders Mortgage Insurance here.

    What if I have less than 20%

    Taking that first step onto the property ladder can be an important life milestone with all the satisfaction that settling down can bring. But it can also be a big step towards your financial future too, and with housing prices on the rise, you may want to enter the property market sooner rather than later. If you don’t have a 20% deposit, LMI is one way that can help you buy your own home with a smaller deposit.

    It is possible to borrow for a home with a deposit as low as 5 or 10%, but you’ll need to demonstrate your ability to service the loan with a good credit history and secure, ongoing employment with enough income to meet your mortgage repayments and living expenses. You may also need to provide a loan guarantor in addition to paying Lenders Mortgage Insurance.  

    Stamp duty and other upfront costs

    Make sure you allow for those up front costs that can be easy to overlook. Even though as a first home owner, you may be eligible for stamp duty concessions in your state or territory, things like application fees, valuation charges, solicitors fees, building and pest inspections can add up to thousands of dollars on top of your deposit. 

    Ready for a great value home loan?

    If you’re looking to buy in the next six months, it can really pay to do your home loan homework to make sure you find the best value loan for your needs. Our Your Way Plus Home Loan offers special low rates + extra discounts exclusively for essential worker legends like you. Explore more home loan options here.

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