Deposits

This guide dives into just how much you need for a house deposit in Australia and what your options are to get there

Written by

Imogen Baxter

Reviewed by

Ava Crawford

Last updated

January 24, 2023

0 minute read

What is a deposit?

A home loan deposit is your initial contribution to the purchase price of a property. The deposit is what you use to secure a home loan, helping you purchase property for more than you have saved.

Deposits are important because they affect your loan-to-value ratio (LVR) (a simple calculation that helps determine your risk to a bank) and your interest rates.

In Australia, lenders have certain loan eligibility criteria. Most financial institutions require a deposit amount of 20% of the purchase price of the home (plus enough extra savings to cover transaction costs such as solicitor/conveyancer fees, stamp duty and government taxes. There are also additional fees to budget for if it’s an investment property).

Due to increasing house prices and deposit amounts, Australian lenders are more and more accepting alternative deposit options - such as a deposit loan or lender’s mortgage insurance (LMI).

How much deposit do I need?

The size of the deposit you require depends on a couple of things: the house price you’re targeting, the financial product or pathway you want to take (which often requires different deposit contributions) and your available savings.

Work out your buying power.

Step one is to understand the kind of house price range your financial situation allows. One way to determine your price range is to use a buying power calculator (also known as borrowing power).

A buying power calculator uses a range of inputs, including your income and liabilities, to estimate what you may be able to borrow from a lender. Combined with your savings, this will help you understand your house price maximum.

For example, if your buying power is $1,000,000 and you have a $200,000 deposit saved, you could consider a home where the property purchase price is $1,200,000.

It’s important to know that some home loans require a minimum contribution such as 5%, 10% or 20% of the purchase price - so your buying power may be lower than you expect based on your income if your savings can’t support a larger loan size.

Why is a larger deposit better?

In general, a larger deposit means you’ll need to borrow less for your new home, which means you’ll pay less interest and potentially lower monthly repayments.

Most lenders will use a loan-to-value (LVR) calculation as part of their lending criteria. This one way to assess the amount they are willing to lend for a home loan. LVR is the amount of your loan compared to the Bank’s valuation of your property, expressed as a percentage.

For example, a loan amount of $400,000 to buy a property worth $500,000 results in a loan-to-value ratio of 80%. Banks place a limit on the loan-to-value ratio depending on things such as the type of property, the location and your financial position. Plus, you need to have money saved for stamp duty and other costs.

Typically, a larger deposit indicates to a lender that you have healthy financial habits, can stick to a savings plan, and have a historical record of being able to make genuine savings. The lender can then assume that you will make your home loan repayments.

What if I don’t have a 20% down payment?

You have a few options if you have a smaller deposit:

Consider a deposit loan. A deposit loan is a simple second mortgage for the deposit funds. As a borrower, you simply borrow the deposit, and use that to get an 80% LVR loan with another lender. You pay a Low Deposit Premium of 1.1% - 2.2% of the home value to access the loan. With OwnHome, you also get the help of a qualified buyer's agent to help with the property hunt. With a deposit loan, you get to avoid lender's mortgage insurance.

Can you afford mortgage repayments but not the deposit? Learn more about a deposit boost loan.

Check your eligibility

Get help from your family. Consider a family guarantor. On your loan application, you would apply with a close family member providing security in the form of savings or equity in their property to support your application. This can reduce your upfront cost but can mean your family is liable for any default. You can also get a family loan or parental gift for your deposit.
‍Try to get a low-deposit home loan and pay Lenders Mortgage Insurance (LMI). Many lenders will require LMI when your LVR is over 80%. Although expensive, you can pay this cost on top of your deposit or include it in your home loan amount. Keep in mind, if you refinance your loan with equity below 20% of the value of the property, then you could be charged LMI a second time.‍
Continue to save more towards a deposit. There are ways to help grow your savings and get your finances in check before buying a house, such as putting money in a term deposit or paying off any credit card debt. Our home loan deposit calculator helps you estimate how long it’ll take to save for your dream home.

Additional deposit support for first-time buyers

The federal and state governments in Australia have programs tailored for eligible first-home buyers who plan to become owner-occupiers, helping them towards their first home. Learn more online.

First Home Owner Grant (FHOG) - ACT, NSW, QLD, NT, SA, TAS, WA.
First Home Loan Deposit Scheme
First Home Guarantee Scheme ‍
First Home Super Saver Scheme

Remember: if you need help deciding which is right for you, mortgage brokers and independent financial advisors have a legal requirement to act in your interests only.

Other upfront costs to consider

There’s more to buying a home than just the cost of the house itself. There are some other upfront costs you’ll need to account for (and have money to spare in your savings account to cover).

Stamp duty

Stamp duty is a state and territory government tax that can fluctuate depending on things such as location, whether it’s a first home, new home or an investment, and the price of the property. Check out our Stamp duty calculator to work out how much you could have to pay.

Legal costs

Buying a property is a legal process and you may choose to use the services of a conveyancer. Conveyancing (the transfer and sale of real estate) can include a property and title search, the review and exchange of the contract of sale, the transfer of the title, and other aspects too.

Note: Conveyancing is included in the OwnHome Deposit Boost Loan Buyer's Agent service at no extra cost.

Mortgage establishment and registration fees

These can depend on the state in which you live and who your lender is. Ask about these when you apply for a home loan.

Buyer’s agent service fees

If you decide you’d like help navigating the Australian property market, you might want to consider a buyer’s agent. They assist with finding, inspecting and negotiating with real estate agents on your behalf.

Note: As an OwnHome customer, you are assigned one of our expert Buyer's Agents to help you get the property you want, where you want and at the right price.

Key takeaways

Know your price range, and how much of a deposit have available.
Be aware there are other costs to consider when buying a home.
Your personal circumstances and how your finances are organised can affect how a lender approaches your home loan.
If you’re a first-time buyer, government support could be available.

FAQs

Can I get a home loan with no deposit?

You can get a home loan with no deposit, although the home loan applications process may take more work.

The most common types of no deposit home loans are:

Guarantor loans — This is where a family member or loved one uses equity in their property as security against your home loan.
Gifted deposit — This is where you receive money from a family member or loved one to either wholly or partially form the deposit on your home loan. Roughly 60% of Australians receive financial contributions towards their first time property purchase. If you have been gifted a deposit, be prepared to show evidence that you are a capable saver: this means evidence of genuine savings (money in a savings account), a good credit score (no outstanding credit card debt), and evidence that the money was received as a gift.

Otherwise, you will need some deposit to get a home loan. While 20% is the recommended deposit, there are low deposit home loans available as well.

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Are there other low-deposit home loan government schemes?

Other than the first home guarantee, there are other schemes run by state and federal government to ensure housing for certain groups.

The family home guarantee sets aside housing for single parents. These can have deposits as low as 2% of the property value.

There is also a regional home guarantee for buyers in rural areas, looking to purchase residential property outside suburban postcodes in major capital cities. These require a 5% minimum deposit and operate in the same way as the first home guarantee.

The only assistance for those in Sydney or Melbourne might be the first home owners grant, but this also operates differently in each state. For example, in NSW it is only a $10,000 grant, while in Tasmania you may be able to receive as much as $30,000.

What is the minimum deposit you need to avoid LMI?

In general, 20% is the minimum deposit required to avoid paying lenders mortgage insurance. There are exceptions above particularly if you use the first home owners grant or a gifted deposit to top up a smaller deposit

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How does my deposit impact my home loan amount?

The bigger your deposit is, the less money you will need to borrow.

It stands to follow that the more money you are able to use as a deposit, the lower your loan amount will be. Conversely, the smaller your deposit, the larger your loan will be.

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Disclaimer

This article is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation, or needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS), or other offer documents before making an investment decision in relation to a financial product (including a decision about whether to acquire or continue to hold).

Prepared by OwnHome Services Pty Ltd ACN 664 492 059. This information does not take your personal objectives, circumstances or needs into account. Always read the disclosure documents for products and services before deciding on a product or service, and consider seeking independent legal, financial, taxation or other advice for your unique circumstances.

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