You don’t need a 20% deposit to buy your first home in Australia. Most lenders will approve a loan with as little as 5–10% deposit, and government-backed schemes can bring that down further for eligible buyers. A 20% deposit simply avoids Lenders Mortgage Insurance, it isn’t a legal minimum, and for many first home buyers, waiting years to save it ends up costing more than paying the insurance would.
Where the “20% deposit” rule actually comes from
The 20% figure isn’t set by law, it’s the threshold most lenders use to decide whether a loan needs Lenders Mortgage Insurance (LMI). Below 80% loan-to-value ratio, lenders generally consider the loan low-risk enough not to require it. Above that, most will still lend to you, but they’ll ask you (or the loan) to cover LMI as a condition. Somewhere along the way, “20%” turned from a lending threshold into popular belief that it’s compulsory. It isn’t.
What a smaller deposit actually costs: LMI explained properly
If your deposit sits below 20%, you’ll typically be asked to pay Lenders Mortgage Insurance. It’s worth understanding what this actually is, because the name is misleading, LMI protects the lender if you default, not you. It’s usually a one-off premium, calculated based on your loan amount and deposit size, and most lenders let you add it to your loan rather than pay it upfront in cash.
The premium can be a meaningful amount on a larger loan, which is exactly why the 20% deposit habit exists. But run the comparison properly before ruling it out: if property prices in your target area are rising faster than you can save, the cost of LMI can be smaller than the cost of waiting another one to two years to hit 20%. This is a genuine numbers exercise, not a blanket rule either way.
Government schemes that lower the deposit you actually need
Several current schemes exist specifically to reduce the deposit barrier for first home buyers:
- First Home Guarantee — eligible buyers can purchase with as little as a 5% deposit without paying LMI at all, because the government guarantees the difference. Places and property price caps apply and vary by region, so it’s worth checking current availability rather than assuming it’s automatically open.
- State-based stamp duty concessions — many states offer full or partial stamp duty exemptions for first home buyers under a certain purchase price, which effectively reduces the total upfront cash you need, even though it isn’t technically part of your deposit.
- First Home Super Saver Scheme (FHSSS) — lets you make voluntary super contributions and later withdraw them (plus earnings) toward a deposit, with concessional tax treatment along the way.
Each of these has its own eligibility rules and caps, and they’re worth stacking together where you qualify — many first home buyers only use one when they could legitimately combine two or three.
What actually matters more than your deposit size
Lenders don’t just look at how much deposit you’ve got — they look at where it came from and how it sits alongside the rest of your financial position. Most want to see three to six months of “genuine savings,” meaning the deposit built up gradually rather than appearing as a single lump sum right before you apply. Your ongoing serviceability — income against expenses and any existing debts — usually has more influence on your approval and your rate than the exact deposit percentage.
How to work out your own number
Rather than picking a deposit target out of thin air, work backward from a real borrowing capacity assessment:
1. Get an accurate read on how much you can borrow, based on your actual income and expenses — not a generic online calculator.
2. Decide the realistic price range that borrowing capacity puts you in.
3. Check which schemes and concessions you’re eligible for at that price point.
4. Calculate the actual deposit needed under each scenario — 5%, 10%, and 20% — including LMI where relevant, so you can compare the true cost of each path side by side.
Frequently Asked Questions
Do I really need a 20% deposit to buy a house in Australia?
No. Most lenders will approve a loan with a deposit as low as 5–10%, though a deposit under 20% usually means paying Lenders Mortgage Insurance unless you qualify for a government scheme that waives it.
What is Lenders Mortgage Insurance and do I have to pay it?
LMI is a one-off insurance premium that protects the lender (not you) if you default on the loan. It generally applies when your deposit is below 20% of the purchase price, and can usually be added to your loan rather than paid upfront.
Can I use the First Home Guarantee with only a 5% deposit?
Yes, if you’re eligible. The First Home Guarantee allows a deposit as low as 5% with no LMI payable, because the government guarantees the shortfall. Place numbers and property price caps apply, so check current availability for your situation.
Does my deposit need to be “genuine savings”?
Most lenders prefer to see your deposit built up gradually over three to six months rather than appearing as a single recent deposit. Gifted funds and other sources can often still be used, but lenders will usually want this documented clearly.
How much deposit do I need for a $600,000 property?
As a guide: 5% is $30,000, 10% is $60,000, and 20% is $120,000. The right number for you depends on which of these paths (standard lending with LMI, a government scheme, or a full 20% deposit) fits your timeline and finances best — worth running properly rather than assuming.