Smart ways to approach home loan deposit requirements

How much deposit do you really need for a home loan?

You need a minimum of 5% of the property value as a deposit, though most lenders prefer 20% to avoid Lenders Mortgage Insurance (LMI). The deposit you'll need depends on the property price, the lender, and whether you qualify for a government scheme that reduces the upfront cost.

Consider a buyer looking at properties in Mount Eliza, where the local market sits within the Victorian regional centres price cap under the Australian Government 5% Deposit Scheme. If you're buying at the current median for a two-bedroom unit near Canadian Bay, your deposit requirement could be as low as 5% if you're eligible as a first home buyer, or as little as 2% if you're a single parent or legal guardian. Without a government guarantee, you'd need 20% to avoid LMI or be prepared to pay the insurance premium on top of your deposit.

The difference between a 5% and 20% deposit isn't just the amount you save upfront. With a smaller deposit, you're borrowing more, which means higher repayments and more interest paid over the life of the loan. But waiting years to save a larger deposit while prices rise can cost you more than the interest difference, particularly in areas where property values have been climbing.

What counts as genuine savings for a home loan?

Genuine savings are funds you've accumulated over at least three months in your own name, held in accounts like a savings account, term deposit, or shares. Lenders want to see that you can manage money consistently and build a deposit through regular saving behaviour, not a one-off windfall.

Gifts from family members don't count as genuine savings, though many lenders will accept gifted funds as part of your deposit once you've met the genuine savings requirement separately. If you've received a $15,000 gift from parents and saved $12,000 over six months, the lender will count the full $27,000 toward your deposit, but only the $12,000 demonstrates your savings discipline.

Some lenders have more flexible policies around what qualifies. Funds from the sale of assets, like a car or motorbike, may be accepted if you can show ownership and a clear sale record. The First Home Super Saver Scheme also allows you to contribute voluntary super contributions and release up to $50,000 toward your deposit, with the ATO providing a determination before settlement.

How Lenders Mortgage Insurance changes your deposit strategy

LMI protects the lender if you default on a loan where your deposit is less than 20%. You pay the premium, which can range from a few thousand dollars to tens of thousands depending on your loan amount and LVR. The premium is usually added to your loan rather than paid upfront, but it still increases your borrowing costs.

In our experience, buyers who are deciding between waiting another year to reach 20% or entering the market sooner with LMI often underestimate how much property prices can move in that time. If values increase by 6% while you're saving an extra $40,000, you've effectively gone backwards. LMI might cost you $18,000 on a loan, but if the property you're targeting increases by $50,000 in value, paying the insurance and buying sooner leaves you ahead.

The Victorian first home buyer stamp duty concession offers a full exemption on properties valued up to $600,000, with a sliding scale concession up to $750,000. For buyers in Mount Eliza purchasing an established home within that range, the stamp duty saving can offset a portion of the LMI cost, making it more viable to enter the market with a smaller deposit. You can explore how borrowing capacity is calculated alongside your deposit to understand what loan amount a lender will approve.

Can you use equity instead of cash for a deposit?

If you already own property, you can use the equity in that property as a deposit for your next purchase without selling. Equity is the difference between your property's current value and what you owe on the loan. Lenders will typically let you access up to 80% of the property's value, minus your existing loan balance.

Someone who owns a townhouse in Frankston valued at $650,000 with a remaining loan balance of $320,000 has equity of $330,000. The lender will allow access to 80% of $650,000, which is $520,000, minus the $320,000 loan balance, leaving $200,000 in usable equity. That's more than enough to use as a deposit on an investment property or to help a family member enter the market, depending on your own borrowing capacity and financial position.

Using equity means you're increasing your total debt, so serviceability becomes more important. The lender will assess whether you can afford repayments on both the existing loan and the new loan at the same time. If you're considering this strategy, it's worth reviewing your current loan structure first through a loan health check to make sure your existing debt is set up efficiently before adding more.

How the 5% Deposit Scheme and Help to Buy work together

The Australian Government 5% Deposit Scheme and Help to Buy are separate programs that can't be combined with each other, but both reduce the upfront cost of buying a home. The 5% Deposit Scheme allows first home buyers to purchase with a 5% deposit and single parents with a 2% deposit, with Housing Australia guaranteeing up to 15% or 18% of the property value to the lender so you reach the equivalent of a 20% deposit without paying LMI.

Help to Buy involves the government taking an equity stake in your property. The government contributes up to 40% of the purchase price for a new home or 30% for an established home, in exchange for holding that same percentage of equity. You need a minimum 2% deposit. When you sell, the government receives its share of the sale proceeds based on the equity percentage it holds. Income limits apply, and from 1 July 2026, the caps are $103,000 for individuals and $165,000 for joint applicants.

Mount Eliza falls within the Victorian regional centres classification under the 5% Deposit Scheme, with a property price cap of $950,000. That covers most units and townhouses in the area and a portion of the house market depending on location and condition. Applications are made through participating lenders, not directly through Housing Australia. You can compare home loan options available under each scheme with a broker who has access to the full panel of participating lenders.

Should you wait to save 20% or buy sooner with a smaller deposit?

The answer depends on how quickly property values are moving and what the delay costs you in rent or opportunity. Waiting to save a larger deposit makes sense if the market is flat or falling, or if your income is about to increase and you'll qualify for a larger loan in six months. Buying sooner with a smaller deposit and paying LMI makes sense if prices are rising faster than you can save, or if rental costs are close to what your mortgage repayments would be.

We regularly see buyers who've been saving for two years, aiming for 20%, only to find the property they could have purchased with 10% is now $80,000 more expensive. The LMI they were trying to avoid would have been $12,000. Timing matters more than hitting an arbitrary deposit percentage, and the right answer is different for every buyer depending on their income stability, the local market, and how long they plan to hold the property.

If you're weighing this decision, run the numbers properly rather than relying on general advice. A broker can show you what your repayments look like at different deposit levels, what LMI would cost, and how that compares to renting while you save. You can also model scenarios using a mortgage repayment calculator to see the difference in your monthly commitments. If you're close to being ready, refinancing an existing loan or switching lenders might improve your borrowing capacity and reduce the deposit gap.

Call one of our team or book an appointment at a time that works for you. We'll walk through your deposit options, show you what schemes you're eligible for, and give you a clear picture of what it takes to get a loan approved in your situation.

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