How Much Deposit Do I Really Need to Buy My First Home?

How Much Deposit Do I Really Need to Buy My First Home?

Buying your first home is a big step, and one of the most common questions new buyers have is around the deposit. Many people assume they need a 20% deposit to get started, but that’s not always the case. While a larger deposit can reduce your repayments and avoid extra costs, it’s still possible to enter the market with much less—sometimes as little as 5%.

Understanding how deposits work, what lenders require, and what support is available can help you plan better and buy sooner.

Do You Really Need a 20% Deposit?

A 20% deposit is often seen as the standard because it helps avoid Lenders Mortgage Insurance (LMI), a cost applied when borrowing more than 80% of a property’s value. However, it’s not a requirement. Many lenders accept smaller deposits, especially for first-home buyers who meet certain eligibility criteria.

Here’s a general guide to how deposit amounts are treated by most lenders:

• 20% Deposit: No LMI, lower loan repayments, and broader lender options.

• 10% Deposit: Accepted by many lenders, though LMI will apply and is often added to the loan.

• 5% Deposit: The minimum for some first-home buyer loans. Higher LMI costs apply, but it allows earlier entry into the market.

Example for a $600,000 property:

• 20% = $120,000

• 10% = $60,000 + LMI

• 5% = $30,000 + LMI

If you’re eligible for a government scheme or can get family support, you may not need to wait until you’ve saved a full 20%.

Options to Buy with a Smaller Deposit

If saving a large deposit feels out of reach, there are several ways to reduce how much you need upfront. These options can help you get into your first home sooner:

• First Home Guarantee (FHG): Allows eligible first-home buyers to purchase with a 5% deposit. The government acts as guarantor for the remaining 15%, which helps you avoid LMI.

• Family Guarantee Loans: A parent or close family member can use the equity in their own home as security. This can reduce or eliminate your deposit requirement and help avoid LMI.

• LMI Capitalisation: Some lenders allow you to add the LMI cost to your loan balance instead of paying it upfront, easing the initial financial pressure.

• Government Grants & Concessions: These vary by state but can include first-home buyer grants, stamp duty exemptions, or shared equity schemes, all of which reduce your upfront costs.

Before making any decisions, it’s important to check which of these options you qualify for based on your income, property value, and location.

Other Upfront Costs to Consider

Saving for a deposit is only part of the picture. There are other costs involved in buying a property that you’ll need to factor into your budget. These vary depending on your location, lender, and property price, but common costs include:

• Stamp Duty: This is a state-based cost. First-home buyers may be eligible for partial or full exemptions.

• Lenders Mortgage Insurance (LMI): If your deposit is under 20%, this cost will usually apply.

• Legal & Conveyancing Fees: These typically range from $1,500 to $3,000 depending on the complexity of the transaction.

• Building & Pest Inspections: These inspections are optional but highly recommended. Costs usually fall between $500 and $800.

• Loan Application & Settlement Fees: Some lenders charge administrative fees for processing your loan.

A good rule of thumb is to budget around 5–7% of the property price for these additional costs, on top of your deposit.

Saving Strategies to Reach Your Deposit Goal

If you’re still working towards your deposit, having a clear savings plan can make a big difference. Even small changes in your budget can add up over time. Here are some strategies that can help:

• Automate Your Savings: Set up a separate savings account and automate a portion of your income to go directly into it each payday.

• Reduce Discretionary Spending: Cutting back on non-essential expenses such as dining out, entertainment, or subscriptions can help free up more money to save.

• Consider Rentvesting: If buying where you want to live isn’t feasible, consider buying an investment property in a more affordable location while continuing to rent in your preferred area.

• Use Government Support: Take advantage of any grants or concessions you’re eligible for to reduce how much you need to save.

For example, if you save $1,000 a month, that’s $12,000 a year. In just over two years, that could be enough for a 5% deposit on a $500,000 property—especially if you’re eligible for government assistance to reduce other upfront costs.

Bringing It All Together

Many first-home buyers delay entering the market because they think they need a large deposit. But with the right information and support, it’s possible to get started with much less. Exploring your options early and building a plan can help you buy your first home sooner than you might think.

Want help working out the best way to get into your first property? Book your investment session with PropVest today and let’s map out your next move.

Disclaimer: This article is for general information only and does not constitute financial, legal, or lending advice. You should seek advice from a qualified professional before making any property or investment decisions.