How much deposit do you actually need?

If you've ever done the sum - 20% of a $800,000 house is $160,000 - and quietly concluded that buying isn't happening this decade, this is the article for you.

Where the 20% figure comes from

20% is not a legal minimum, and it is not what lenders require. It is the point at which you stop having to pay Lenders Mortgage Insurance. That's all it is. It's a threshold on a fee, not the price of entry.

Most lenders will lend with a 10% deposit. Many will go to 5%. Some will go further with a guarantor. The trade-off is that below 20% you'll generally pay LMI, and your rate may be slightly higher because the lender is taking more risk.

What LMI actually is

Lenders Mortgage Insurance protects the lender, not you. If you can't repay and the property is sold for less than the outstanding loan, the insurer covers the lender's shortfall - and can then pursue you for it. It's an unusual product in that you pay the premium and someone else is insured.

It's charged once, typically at settlement, and most lenders let you add it to the loan rather than paying it in cash. Convenient, but remember you'll then pay interest on it for the life of the loan.

The cost varies with your deposit and the loan size. Broadly, on a $700,000 purchase, a 10% deposit might attract something in the region of $12,000–$20,000. At 5%, materially more. Your exact figure depends on the insurer and lender, and we can get it before you commit to anything.

Ways to pay less LMI, or none

• The Home Guarantee Scheme. Eligible buyers can purchase with as little as 5% deposit with no LMI, because the government guarantees part of the loan. Places and price caps apply. See our guide to government schemes.
• A guarantor. A family member offers equity in their own property as extra security. This can remove LMI entirely. It's a serious commitment for them and shouldn't be entered into casually.
• Professional waivers. Some lenders waive LMI up to 90% - occasionally 95% - for certain occupations, commonly doctors and specialists, and sometimes lawyers, accountants and other professions. Worth asking about if it might apply to you.
• Buy slightly cheaper. Unromantic, but dropping your target price a little can shift you into a lower LMI band, and the saving is sometimes larger than the compromise.

Your deposit is not your only cash requirement

This trips up more first buyers than anything else. On top of the deposit you'll need funds for:

• Stamp duty, unless you qualify for a concession - often the largest single item
• Conveyancing or solicitor's fees, commonly $1,500–$3,000
• Building and pest inspection, roughly $400–$800
• Loan application or settlement fees, if not waived
• Moving costs, and whatever the new place immediately needs

Our guide to buying costs goes through these properly. The short version: budget for them separately, or your deposit isn't the deposit you think it is.

Genuine savings, and why lenders care

Many lenders want to see that at least part of your deposit is "genuine savings" - money you accumulated yourself over three months or more, rather than a sudden gift or a windfall. They're testing whether you can hold money, not just have it.

Gifts from family are perfectly acceptable to most lenders, but the rules around evidence vary, and some want a signed letter confirming it isn't a loan. If a family member is helping, mention it early. It's much easier to handle up front than to explain three weeks into an application.

The short version

You probably need less than you think, and you probably need it in more places than you think. 5% or 10% deposits are ordinary, LMI is a real cost that's sometimes worth paying, and the upfront extras deserve their own line in your budget.

If you want your actual number rather than a general one, that's a fifteen-minute conversation and it costs nothing.