How Much Deposit Do You Need to Buy a House in Australia?

On the journey to buying your first home, one question looms larger than any other: how much money do I actually need to save?

For decades, the standard answer was simple: you need a 20% deposit. It was the golden rule of Australian real estate. But in today's property market, where saving a full 20% can feel like a moving target-especially in capital cities like Sydney and Melbourne-many Australians are looking for alternative pathways.

The good news is that buying a home with less than 20% is not only possible but increasingly common. In fact, for many first home buyers, waiting to save a full 20% might actually be a financial disadvantage if property prices rise faster than their savings balance.

In this guide, we'll break down exactly how much deposit you need, the costs of buying with a smaller deposit, the government schemes that could fast-track your entry into the market, and the smart ways to store your cash while you build your nest egg.

The '20% Deposit' Rule Explained

Why is the 20% figure so standard in the Australian property market? To understand this, we need to look at it from the bank's perspective. It comes down to one word: risk.

When a bank lends you money to buy a house, they use the Loan-to-Value Ratio (LVR) to assess their risk. If you have a 20% deposit, your LVR is 80%, meaning you are borrowing 80% of the property's value. Banks and regulators generally consider an LVR of 80% or lower to be a "safe" loan.

If you default on your repayments and the bank is forced to repossess and sell your home, a 20% buffer makes it highly likely they will recover the full loan amount even if property prices have dipped slightly since you bought it.

Because of this safety net, borrowers with a 20% deposit are often rewarded with:

1. Lower Interest Rates: Many lenders have "tiered" interest rates, offering their lowest rates to borrowers with an LVR of 60% or 80%, and higher rates for those with 90% or 95%.
2. No LMI: You avoid the cost of Lenders Mortgage Insurance entirely.
3. Faster Approval: Lower risk often means fewer hoops to jump through during the credit assessment process.

Can You Buy a House with Less Than a 20% Deposit?

Yes, absolutely. Most lenders in Australia will allow you to buy a home with a deposit as low as 5% or 10%. However, there is a catch that serves as a trade-off for entering the market sooner: Lenders Mortgage Insurance (LMI).

What is Lenders Mortgage Insurance (LMI)?

LMI is an insurance policy that lenders take out to protect themselves (not you) against the risk of you defaulting on your loan. It typically applies whenever your deposit is less than 20% of the property's value (or your LVR is higher than 80%).

While LMI protects the bank, you-the borrower-pay the premium. This premium is usually a one-off cost.

How is it paid? You can choose to pay it upfront, but most buyers choose to "capitalise" the LMI premium. This means the cost is added to your total loan amount. While this saves you from paying thousands of dollars upfront, it does mean you will pay interest on the LMI premium over the 30-year life of your loan, which can add up significantly.

Is paying LMI worth it? For many buyers, the answer is a strategic yes. In a market where property prices are rising, the cost of LMI might be significantly less than the increase in property prices during the 12 to 24 months it would take you to save the regular 20% deposit. It allows you to enter the market sooner, stop paying rent, and start building equity.

Government Schemes to Boost Your Deposit

To help Australians get into their own homes sooner, the Federal Government offers schemes that can significantly reduce the deposit hurdle without the cost of LMI.

The First Home Guarantee (FHBG)

The First Home Guarantee is a game-changer for eligible first home buyers. Under this scheme, the government acts as a guarantor for up to 15% of your home loan.

This means you can buy a home with a deposit as low as 5%, and because the government backing reduces the lender's risk, you generally do not have to pay Lenders Mortgage Insurance.

Key Eligibility Concepts:

• Income Limits: There are strict income caps for singles and couples.
• Property Price Caps: The home you buy must be under a certain price threshold, which varies by state and whether you are in a capital city or regional area.
• Citizenship: The scheme is available to Australian citizens and, depending on current rules, may also be open to permanent residents.
• Prior Ownership: Generally available to first home buyers, though eligibility rules may also extend to those who have not owned property for a defined period. Check the latest criteria on the Housing Australia website.

Places in this scheme are limited each financial year. It's important to check the latest eligibility criteria directly with Housing Australia or speak with a mortgage broker.

Regional First Home Buyer Guarantee

If you live in a regional area and want to buy locally, the Regional First Home Buyer Guarantee functions similarly to the FHBG, allowing you to buy with a 5% deposit without LMI.

Family Home Guarantee

For single parents or single legal guardians with at least one dependent child, the Family Home Guarantee allows you to build or buy a home with a deposit as low as 2%, with the government guaranteeing the remaining 18%.

Supercharging Your Savings: The First Home Super Saver (FHSS) Scheme

One of the most tax-effective ways to save for a deposit is often overlooked: your superannuation fund.

The First Home Super Saver (FHSS) scheme allows you to save money for your first home inside your super fund. This is beneficial because super is taxed at a concessional rate (typically 15%), which is likely much lower than your marginal income tax rate.

How it works:

1. You make voluntary concessional (pre-tax) or non-concessional (after-tax) contributions to your super fund.
2. These funds earn returns inside the super environment.
3. When you are ready to buy, you apply to the ATO to release these voluntary contributions (plus associated earnings) to use for your deposit.

By using pre-tax dollars to save, you can potentially save a deposit faster than if you were saving after-tax dollars in a standard bank account.

This is general information only. The FHSS scheme involves your superannuation and has tax implications. Consider speaking with a qualified financial adviser or tax professional before making voluntary super contributions.

What Counts as 'Genuine Savings'?

When applying for a home loan, simply having the cash in your account isn't always enough. Lenders want to see that you have the financial discipline to manage mortgage repayments. This is where the concept of "genuine savings" comes in.

Most lenders require that at least 5% of the purchase price be genuine savings. This typically refers to funds that you have gradually saved over a period of time (usually 3 months or more).

What is NOT considered genuine savings?

• Cash gifts: A lump sum gift from parents is fantastic for your deposit size, but lenders may not count it as proof of your saving ability unless it has been sitting in your account for several months.
• Asset sales: Money from selling a car, crypto, or other items is often not considered genuine savings immediately.
• Tax refunds or inheritance: These are lump sums rather than evidence of regular saving habits.

The "Rent Exception" If you are currently renting, some lenders may accept your history of on-time rental payments as a substitute for genuine savings. If you have been paying rent for 12 months, this proves you can manage a budget, even if your deposit came from a gift or windfall.

Where to Park Your Deposit While You Save

While you are building your deposit, it is critical that your money is working as hard as possible. Leaving your savings in a standard transaction account often means earning little to no interest. Every dollar of interest earned is a dollar less you have to save from your salary.

Instead, consider a dedicated high-interest savings account or a term deposit.

High-Interest Savings Accounts

These accounts often offer bonus interest rates if you meet certain monthly conditions. Common conditions include:

• Depositing a minimum amount each month (e.g., your salary).
• Making a set number of card transactions.
• Growing the balance (ensuring you save more than you withdraw).

Current top savings rates can be quite competitive. For example, ING offers a top rate of 5.40% p.a. and UBank offers 5.35% p.a..

Term Deposits

If you have a lump sum and want to lock it away to avoid the temptation of spending it, a Term Deposit (TD) can be a great option. Make sure the term aligns with your buying timeline, as accessing funds early typically incurs a penalty (usually a reduction in the interest rate).

Currently, the best 12-month term deposit rate is 4.93% p.a..

You can compare more options on our savings accounts and term deposits pages.

Hidden Costs: Buying a House Costs More Than the Deposit

A common mistake for first home buyers is focusing solely on the deposit percentage and forgetting the upfront costs of purchasing. These "hidden" costs can eat into your savings significantly. If you save exactly 5% of the purchase price, you likely won't have enough to complete the purchase.

Here is what you need to budget for:

• Stamp Duty: This is usually the biggest upfront cost outside the deposit. It is a state-based tax calculated on the property value. Many states confirm stamp duty concessions or exemptions for first home buyers up to certain price thresholds. But if you are buying above those thresholds, stamp duty can cost tens of thousands of dollars. Check out our stamp duty guide for more details.
• Transfer Fees: A government fee for transferring the title of the property to your name. This is typically a few hundred dollars.
• Legal & Conveyancing Fees: You will need a solicitor or conveyancer to handle the legal transfer of the property and contract review. They check for caveats on the title and ensure the settlement goes smoothly.
• Building & Pest Inspections: Essential for ensuring the property doesn't have major structural issues, dampness, or termite damage. Skipping this to save money could prove far more costly in the long run.
• Loan Application Fees: Some lenders charge an upfront fee to establish the loan, though this is often waived in competitive markets.
• Mortgage Registration Fee: A state government fee to register the mortgage on the property title.

The "Safe" Buffer: When calculating your "deposit," ensure you have enough funds left over to cover these expenses. A good rule of thumb is to aim for your deposit percentage plus 3-5% of the purchase price to cover costs (depending on your state and stamp duty concessions).

How Long Does It Take to Save a Deposit?

The time it takes to save a deposit depends entirely on your income, expenses, and target property price. However, establishing a clear framework can help you visualize the finish line:

1. Set a target: Determine the likely price range of the property you want to buy using recent sales data in your desired suburbs.
2. Calculate the 20% vs 5%: Work out what 20% of that price is, and what 5% plus costs would be. This gives you your "ideal" goal and your "minimum" goal.
3. Audit your surplus: How much can you realistically save each month after essential expenses? Be honest with yourself.
4. Do the maths: Divide your target amount by your monthly savings to see how many months you have ahead.
5. Factor in acceleration: Remember that using a high-interest savings account will speed this up slightly, as will any potential salary increases or bonuses.

Strategies to Accelerate Your Deposit Savings

Saving a deposit is a marathon, not a sprint. However, there are proven strategies to help you reach the finish line faster.

1. Automate Your Savings

The most effective way to save is to remove the element of choice. Set up an automatic transfer from your everyday account to your dedicated high-interest savings account for the day after your payday. Treat your savings like a non-negotiable bill that must be paid. If you never see the money in your spending account, you won't miss it.

2. The "Buckets" Strategy

Organize your bank accounts into clear "buckets" to separate your spending money from your deposit money.

• Bucket A (Daily Expenses): Rent, groceries, transport.
• Bucket B (Fun Money): Dining out, entertainment (capped limit).
• Bucket C (The Vault): Your home deposit. This account should be with a different bank to your daily spending account to reduce the temptation to dip into it.

3. Audit Your Subscriptions

Go through your bank statement for the last 3 months. Identify every recurring subscription-streaming services, gym memberships, app subscriptions. Cancel anything you haven't used in the last 30 days. Redirect that monthly cost directly into your deposit fund.

4. Comparison Shop Your Bills

Loyalty is rarely rewarded in the world of utilities and insurance. Once a year, set aside an afternoon to call your electricity, gas, internet, and car insurance providers. Ask for a better deal or switch to a cheaper competitor. The hundreds of dollars saved here can go straight into your deposit.