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Home Loan Deposit Requirements

Your deposit size affects your loan amount, interest rate, LMI costs and monthly repayments. Let's break down 5%, 10% and 20% deposit paths, plus genuine savings and lender policies.

What is a deposit?

A deposit is your upfront contribution to the purchase. The remainder is borrowed from a lender. Your deposit size determines your loan-to-value ratio (LVR) and affects rates, insurance and approval odds.

Formula

  • Purchase price: $500,000
  • Deposit (20%): $100,000
  • Loan amount (80%): $400,000
  • LVR: 80%

5% Deposit

Loan-to-Value Ratio (LVR): 95%

Advantages

  • Buy sooner without waiting to save 20%
  • Build equity immediately while renting
  • Lower total deposit required (e.g., $25,000 on $500k property)

Disadvantages

  • Mortgage Insurance (LMI) required: ~5–8% of loan amount (~$20k–$40k added to loan)
  • Higher interest rates (may be 0.3–0.5% above 20% deposit rates)
  • Fewer lender options; some banks don't accept 5% deposits
  • Higher monthly repayments
  • Genuine savings history required (usually 2–3 years)

Genuine Savings: Must show 2–3 years of regular monthly deposits into a savings account. Lenders want to confirm discipline with money.

10% Deposit

Loan-to-Value Ratio (LVR): 90%

Advantages

  • More lender options than 5% deposit
  • Lower LMI (~2–4% vs ~5–8% at 5% deposit)
  • Better interest rate options than 5%
  • Achievable without years of saving (15–24 months typically)

Disadvantages

  • Still requires LMI (~$8k–$16k typically)
  • Rates higher than 20% deposit (but better than 5%)
  • Higher repayments than 20% deposit

Genuine Savings: Typically 1–2 years of regular monthly deposits (more lenient than 5%).

20% Deposit (Standard)

Loan-to-Value Ratio (LVR): 80%

Advantages

  • No LMI: Saves $8k–$30k depending on property
  • Best interest rates; widest lender choice
  • Lowest monthly repayments
  • Most flexibility in loan structure and features
  • No genuine savings history required

Disadvantages

  • Longer savings time (3–5+ years typically)
  • May wait longer to enter market while property prices change

Mortgage Insurance (LMI) Explained

LMI protects the lender if you default on the loan. You pay the premium, and it's added to your loan balance.

Example: $500,000 property, 5% deposit

  • Deposit: $25,000
  • Loan before LMI: $475,000
  • LMI premium (~8%): $38,000
  • Total loan after LMI: $513,000
  • Additional monthly repayment: ~$200–250

Note: You can remove LMI later by refinancing once you've built 20% equity (e.g., through property appreciation or extra repayments). Review your lender's policy.

Genuine Savings: What Lenders Want

Many lenders require evidence of genuine savings, especially with lower deposits:

  • Time frame: Usually 2–3 years of consistent monthly deposits (lower deposits) or 1–2 years (10% deposits)
  • Evidence: Bank statements showing regular deposits into a savings account
  • Consistency: Monthly deposits from your regular income (bonuses or sporadic deposits may not count)
  • Exceptions: Family gifts, inheritance, superannuation co-contribution schemes may bypass savings history requirements
  • Recent lump sums: If you've had a sudden increase (bonus, inheritance, asset sale), be ready to explain it

Comparing the three paths

Deposit LVR LMI Cost Savings Time Rate
5% 95% $20k–$40k 2–3 years Highest (+0.3–0.5%)
10% 90% $8k–$16k 1–2 years Mid (+0.1–0.3%)
20% 80% $0 (No LMI) 3–5+ years Best (Base)

Deposit + Schemes = Lower Costs

First home buyers can often combine deposit strategies with government schemes:

  • 5% deposit + Home Guarantee Scheme: No LMI (save $25k+)
  • Stamp duty concession: Save $15k–$25k at settlement
  • First Home Owner Grant: Receive $10k–$20k post-settlement

Which deposit path is best for you?

Use our affordability calculator to model different deposit sizes, or talk to CredQ about strategies that match your timeline and savings plan.

Calculate Your Path
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