How Much House Deposit Do You Need?
A 20% house deposit is the ideal, not the minimum. What LMI costs below it, how guarantor loans work, and the 5% First Home Guarantee.
The standard advice is a 20% deposit — $140,000 in cash on a $700,000 home. But 20% is the ideal, not the entry ticket; Australians buy with far less all the time.
The real question is what the shortcut costs, and whether that price beats years of extra saving.
Why banks love the 20% club
With 20% down, you skip Lenders Mortgage Insurance (more on that below), usually get the sharpest interest rates, and carry a smaller loan with smaller repayments from day one.
You also start with real equity — a handy cushion if prices wobble or plans change. It's the most comfortable way in, and the slowest to save for.
LMI: paying the bank's insurance premium for it
With less than 20%, the lender usually charges Lenders Mortgage Insurance (LMI) — a one-off premium you pay so the bank feels safe lending to you. The twist: LMI protects the lender, not you.
The bill scales with your loan size and how thin your deposit is — a few thousand dollars on smaller loans, tens of thousands on a pricier home with a 5% deposit. Most people add it to the loan itself, which means paying interest on the insurance too.
- Applies to most loans with under a 20% deposit
- Protects the lender — you get nothing if things go wrong
- The smaller your deposit, the bigger the premium
- Usually added to the loan, so you pay interest on it too
🧐Reality check
LMI doesn't insure you against anything. If you can't repay and the bank loses money, LMI pays the bank — and the insurer can still chase you for the cash.
Guarantor loans: mum and dad's equity, on the line
A guarantor loan lets a family member — usually a parent — offer part of their own home's value as backup security for your loan. Done right, it can get you in with a tiny deposit and zero LMI.
The catch is the whole deal: if you can't repay, the guarantor's home is on the hook for the part they guaranteed. Both sides should get independent advice — from someone who isn't the bank — before signing.
The 5% door the government holds open
Under the First Home Guarantee, eligible first home buyers can purchase with as little as a 5% deposit. The government promises the bank it'll cover part of the loan, so no LMI applies.
Eligibility rules and property price caps change over time, so check the current details before building a plan around the scheme. States also offer their own grants and discounts on stamp duty (the state tax you pay when buying a property).
💡Quick win
If you're an eligible first buyer, the First Home Guarantee can wipe the LMI bill entirely. Check the current price caps before you fall in love with a suburb.
So what's the real number?
Less than you think — but every shortcut has a price: an LMI premium, a guarantor's risk, or a scheme's eligibility hoops. And the deposit isn't the whole bill: stamp duty, legal fees and building inspections stack on top.
Price each trade-off in actual dollars, then check the repayments still fit your take-home pay if things get tighter. Getting in earlier only wins if you can afford to stay in.
FAQ
Can I buy a house with a 5% deposit?
Yes, in some cases. Eligible first home buyers can use the First Home Guarantee to buy with 5% and no LMI. Otherwise you can buy with a small deposit and pay LMI, or bring in a guarantor.
How much does LMI cost?
It scales with your loan size and deposit — from a few thousand dollars up to tens of thousands on larger loans with 5% deposits. The thinner the deposit, the fatter the premium.
Is it better to wait and save 20%?
It depends. Saving 20% dodges LMI and shrinks your repayments, but takes longer. Buying earlier with less costs more upfront but gets you in sooner. Run both scenarios with real numbers before deciding.
Run your own numbers
Sources: figures checked against ATO published rates and thresholds for FY2025-26 at the review date. See how we check our numbers.
⚠️ General information only — not tax or financial advice. Figures relate to FY2025-26 unless stated otherwise.