One of the most common questions I get is:
"How much deposit do I actually need to buy my first home?"
The short answer is, it depends. But here is a simple breakdown to help you understand your options.
The typical deposit range
Most first home buyers in Australia purchase with a deposit between 2% and 20% of the purchase price.
- 2% deposit: minimum entry point for single parents and the Help to Buy scheme.
- 5% deposit: minimum entry point for many lenders (and the 5% no LMI scheme).
What is Lenders Mortgage Insurance (LMI)?
If your deposit is less than 20%, you will usually pay LMI.
- It is a one-off cost.
- It is often added to your loan.
- It protects the lender, not you.
It can be a significant cost, but it allows you to buy sooner with a smaller deposit.
Can you buy with less than 20%?
Yes, and many first home buyers do. There are a few key options.
1. 5% deposit (standard option)
Most lenders allow you to buy with a 5% deposit, with LMI.
2. First Home Guarantee (5% with no LMI)
Eligible buyers can purchase with just a 5% deposit and avoid LMI through the government scheme.
3. Family Home Guarantee (2% deposit for single parents)
If you are a single parent, this scheme can be a game changer. You may be able to buy with as little as a 2% deposit, with no LMI required. This has helped a lot of single parents get into the market sooner.
4. Help to Buy (shared equity scheme)
This is a newer government initiative where the government contributes up to 30% to 40% of the purchase price, you only need a smaller deposit (from 2%), and you co-own part of the property with the government. This can significantly reduce your loan size and repayments. Eligibility criteria and property price caps apply.
5. Family Guarantee (guarantor loan)
A family member can use their property as security. This can allow you to buy with little to no deposit and avoid LMI.
What costs should you budget for?
Your deposit is not the only cost. You should also allow for:
- Stamp duty (may be reduced or waived depending on your state)
- Legal and conveyancing fees
- Building and pest inspections
- Loan setup costs
A rough guide is to have an extra 3% to 5% of the purchase price set aside.
The biggest misconception
A lot of first home buyers think they need a full 20% deposit. In reality, that is often not necessary. There are multiple ways to get into the market sooner with a smaller deposit.
The bottom line
- You can buy with as little as a 2% to 5% deposit depending on your situation.
- Government schemes can significantly reduce upfront costs.
- A larger deposit still gives you more flexibility and lower long-term costs.
If you are not sure what you are eligible for or how much deposit you actually need, it is worth having a quick chat. I can run through your options and help you map out the easiest path into the market.