Still think you need a 20% deposit to buy your first home in Australia? Learn how first home buyers are getting into the market with 5–15% deposits using LMI, government schemes and family support, and how to choose a realistic savings target.
Key Takeaways
- A 20% deposit is not mandatory for first home buyers in Australia, many lenders now accept deposits as low as 5–10% for owner‑occupiers.
- Using a smaller deposit with Lenders Mortgage Insurance (LMI) or government guarantee schemes can help you buy sooner, but will increase your total borrowing costs.
- Genuine savings held in your name for at least 3 months remain a strong positive factor, but many lenders will also consider non‑genuine savings like gifts, asset sales and bonuses.
- Common deposit targets of 5%, 10–15% and 20% each balance speed versus cost differently, so it’s important to choose a goal that fits your income, timeframe and borrowing capacity.
How Much Deposit Do First Home Buyers in Australia Really Need?
Many first home buyers in Australia still believe they must have a 20% deposit to get a home loan approved. In reality, lenders are far more flexible than most people realise.
Typical deposit ranges for first home buyers- 5%–10% deposit is now very common for owner‑occupiers.
- 10%–15% deposit can help reduce Lenders Mortgage Insurance (LMI) costs.
- 20% deposit usually avoids LMI altogether but isn’t always necessary.
On a $700,000 property, a traditional 20% deposit is
$140,000, and that’s before you add stamp duty (where applicable), legal fees and other purchase costs. For many first home buyers, saving that much would take years and mean missing out on the market.
You no longer always need a 20% deposit – what matters is choosing the right mix of deposit, LMI and support schemes for your situation.
By using a smaller deposit combined with
LMI, or tapping into government schemes and family support, many buyers are getting into their first home sooner without waiting to hit the 20% mark. If your goal is to buy within the next 6–18 months, it can be smarter to plan around a realistic deposit target and build a strategy that balances affordability, risk and time to enter the market. Understanding how your
loan‑to‑value ratio (LVR) affects your interest rate is also crucial when you’re deciding how much deposit to aim for. Deposits under
5% are possible, but they’re usually linked to specific support options rather than standard bank policy. Understanding how these work can help you set realistic expectations.
How Low Deposits Really Work in Australia
Common ways buyers purchase with a small deposit:- Government guarantee schemes For eligible first home buyers, schemes like the First Home Guarantee may allow you to buy with as little as 5% deposit without paying full LMI, because the government guarantees part of the loan.
- Parental (family) guarantees A parent offers equity in their own property as additional security, which can effectively cover the missing deposit and help you avoid or reduce LMI.
- Niche lender products A small number of lenders offer low‑deposit or even no‑deposit home loans, but these usually involve stricter criteria, higher interest rates, or both.
Because each option comes with different risks, costs and eligibility rules, it’s crucial to plan your pathway before you start making offers. A broker can:
If you’re unsure what deposit target to aim for, speaking with a mortgage broker early can help you lock in a realistic goal and a clear savings and borrowing strategy.
| Deposit Size | Typical Outcome |
|---|
| 5%–10% | Faster entry but higher LMI and repayments |
| 10%–15% | Balanced approach with reduced LMI |
| 20% | Usually no LMI, but longer time to save |
Different Deposit Sources for Home Loans: Genuine, Non‑Genuine and Alternative Funding Explained
Understanding Genuine Savings for Australian Home Loans For many lenders in Australia,
genuine savings are still the gold standard when it comes to home loan deposits. These are funds that you’ve built up yourself and held in your name for at least
three months, showing consistent saving and money management. Lenders like genuine savings because they indicate:
- Budgeting discipline – you can live within your means and put money aside regularly.
- Lower default risk – if you’ve proven you can save, you’re more likely to cope with repayments.
- Financial stability – a solid pattern of savings supports stronger loan approval chances.
A quick comparison of common genuine vs non‑genuine deposit sources:
| Deposit Source | Genuine Savings? | How Lenders Commonly View It |
|---|
| Regular savings account | Yes | Strong positive factor |
| Term deposit held 3+ months | Yes | Treated as genuine savings |
| Gift received last minute | No | Often accepted, but not as “genuine” |
| Sale of a car just before loan | No | Non‑genuine, may still be usable |
If you’re planning to buy in 6–12 months, starting a clear savings pattern now can open up more lender options and potentially better interest rates. At the same time, keeping your debts low and managing your repayments on time can help
improve your credit score in Australia, which supports a stronger application.
Non‑Genuine Savings and Alternative Funding: How Lenders Really See Them Many mainstream Australian lenders now take a more flexible view on deposits, especially for strong applicants with solid income and clean credit. Besides genuine savings, they may accept:
- Non‑genuine savings such as:
- Cash gifts from family
- Proceeds from the sale of a car or other assets
- Tax refunds or bonuses
- Alternative funding like:
- First Home Super Saver (FHSS) withdrawals
- Evidence of strong rental payment history (rental ledger policies)
Real‑life example – First home buyer using mixed sources Sophie is a first home buyer in Melbourne:
- She has $12,000 in genuine savings held for over 3 months.
- Her parents gift her $18,000 to boost the deposit.
- She withdraws $10,000 through the FHSS scheme.
- She’s rented for 2 years with a perfect rental ledger.
Some lenders will treat Sophie’s case favourably because her mix of genuine savings, family support and proven rental history shows she can manage money and commitments.
If you’re unsure whether your deposit is “good enough”, a broker can review your savings, gifts and other funds, then match you with lenders that accept your specific mix of deposit sources.
Key Deposit Structures in Australia: LMI Loans, Guarantees, Super and Shared Equity Explained
Understanding Your Deposit Options: LMI, Guarantees, Super and Shared Equity How Higher Interest Rates and APRA Rules Are Limiting Borrowing Capacity in Australia
Higher interest rates and tougher APRA serviceability buffers mean many Australians now qualify for smaller home loans than they did a few years ago – even if their income hasn’t changed. Rising living costs are also biting into what banks call surplus income, which is a key part of how your borrowing capacity is calculated.
Key pressure points right now:- Higher interest rates: Lenders must test your ability to repay at a rate at least 3% above the actual rate (the APRA buffer).
- APRA serviceability buffers: These rules are designed to protect borrowers but can significantly reduce the maximum loan size.
- Cost‑of‑living increases: Groceries, utilities, petrol and childcare all feed into lender expense benchmarks.
For many first home buyers, borrowing capacity is now just as big a hurdle as saving the deposit.
This shift means you can be a good saver with a solid deposit and still fall short on how much the bank is willing to lend. Planning ahead and structuring your application carefully is more important than ever. To understand the challenge, it helps to see how the numbers stack up under today’s rules:
| Factor | What’s Changed (2024–2026) | Impact on Borrowers |
|---|
| Interest rates | Increased from historic lows | Higher monthly repayments |
| APRA serviceability buffer | Typically 3% above the actual rate | Lower maximum loan approval |
| Living‑cost assumptions | Updated, reflecting higher inflation | Less surplus income in lender calculators |
Example scenario: A couple earning a combined $150,000 with a 15% deposit may find they:
- Could have borrowed $800k+ in the low‑rate era, but
- Are now capped closer to $600k–$650k, depending on debts and expenses.
Even if they’ve done well saving a deposit, the reduced borrowing capacity may push them to look at more affordable suburbs or regional areas, consider a smaller property (for example, a unit instead of a house), or explore government guarantee schemes or family pledge options to improve overall affordability. If you’re unsure what price range you can genuinely afford, it’s smart to get borrowing capacity modelling done before you commit to a property search or sign a contract. A mortgage broker can run the numbers across multiple lenders, highlight where buffers and spending are holding you back, and help you adjust your strategy to stay on track for home ownership.
Practical Home Deposit Strategies to Get into Your First Property Sooner
Choosing a realistic home deposit target is the first step to getting into the market without over‑stretching yourself. For many Australian first‑home buyers, that might mean starting with
5%, 10–15% or 20% rather than chasing an arbitrary figure. Here’s how those common deposit targets compare:
| Deposit Size | Pros | Cons |
|---|
| 5% | Faster entry to market, lower savings hurdle | Higher LMI, tighter borrowing rules, bigger repayments |
| 10–15% | Balance between speed and cost, reduced LMI | Still may pay some LMI, requires stronger savings discipline |
| 20% | No LMI with most lenders, lower repayments | Takes longer to save, risk of prices rising while you wait |
Example: A couple buying a
$700,000 property:
- 5% deposit = $35,000 (plus costs)
- 10% deposit = $70,000
- 20% deposit = $140,000
The right target depends on your income, rent, and how quickly you want to buy. Once you’ve set a target, you need a clear savings plan that works in the real world, not just on paper. Consider these practical tactics:
- Use high‑interest or bonus‑interest savings accounts to keep your deposit separate from day‑to‑day spending.
- Automate transfers the day after payday so your savings grow before you’re tempted to spend.
- Where appropriate, explore First Home Super Saver (FHSS) contributions, which can offer tax advantages when saving for your first home.
Case study: Sarah earns $85,000 and wants a 10% deposit on a $650,000 unit (~$65,000). She:
- Sets up a separate high‑interest savings account.
- Automates $900 per fortnight into that account.
- Adds voluntary FHSS contributions of $200 per fortnight via her super.
With discipline, she’s on track to reach her target in around three years, even allowing for some annual expenses. Once she buys, she can then look at strategies for
paying her home loan off faster by structuring repayments and offsets effectively.
If you’re unsure which deposit goal is realistic for your situation, a mortgage broker can help you weigh up speed versus cost and structure a savings plan that fits your income, lifestyle and timeframe.
For further reading, explore how your
loan‑to‑value ratio impacts your interest rate and how
Lenders Mortgage Insurance works in practice. You may also benefit from understanding
how to improve your credit score before applying and the
top things to keep in mind when seeking loan pre‑approval. By combining a realistic deposit target with the right structure, strong credit habits and a clear savings plan, you can move from simply saving to owning your first home with confidence.
Disclaimer:
All information on this website is general in nature and not intended as financial, investment, legal, or tax advice. It may not suit your personal circumstances. You should seek independent professional advice before acting on any content. We accept no liability for actions taken based on this information.
