Unlock the secrets to deposit requirements for home loans

How much deposit do you actually need?

Most lenders accept a deposit of 5% to 20% of the property value, with 20% being the threshold at which you avoid paying Lenders Mortgage Insurance. A 5% deposit is accessible through participating lenders under the Australian Government 5% Deposit Scheme, while borrowers with larger deposits gain access to lower loan amounts and typically stronger interest rate discounts.

Consider a buyer who has saved $50,000 and is looking at properties around the Central Coast median. With that amount, they could pursue a property at a value where $50,000 represents 10% of the price, paying LMI on the remaining 10%, or they could look at a lower-priced property where the same $50,000 represents 20% and avoid LMI entirely. The second approach reduces the loan amount and the total interest paid over the life of the loan, but it also narrows the range of properties available. The decision comes down to whether the buyer values access to a specific property type or location over minimising upfront and ongoing costs.

If you're weighing up your options and want to understand how your deposit size affects your borrowing power, a borrowing capacity assessment can clarify what you can afford at different deposit levels.

What counts as genuine savings?

Lenders distinguish between funds you've accumulated over time and funds that have appeared recently in your account. Genuine savings are funds held in your account for at least three consecutive months, typically in the form of regular salary deposits that you've saved rather than spent. Lenders look for a consistent pattern of saving to demonstrate that you can manage your finances and set money aside.

Gifts from family members are generally not classified as genuine savings unless they've been in your account for at least three months. Some lenders will accept gifted funds as part of your deposit, but they may still require you to demonstrate genuine savings separately. The same applies to bonuses, tax refunds, or the sale of assets like a car. These can contribute to your deposit, but they don't replace the need to show a history of disciplined saving.

How Lenders Mortgage Insurance affects your deposit strategy

Lenders Mortgage Insurance is a one-off premium charged when your deposit is less than 20% of the property value. The premium is calculated on a sliding scale based on your loan amount and loan-to-value ratio, and it protects the lender if you default on the loan. You pay the premium, but the lender is the beneficiary.

For a buyer borrowing 90% of the property value, LMI can add several thousand dollars to the upfront cost of purchasing. The premium can be paid at settlement or capitalised into the loan amount, meaning you borrow slightly more and pay interest on the premium over the life of the loan. Capitalising the premium reduces the cash you need at settlement but increases your total debt and your ongoing repayments.

The Australian Government 5% Deposit Scheme eliminates the need for LMI by providing a guarantee to the lender for up to 15% of the property value. This allows eligible first home buyers to purchase with a 5% deposit without paying the insurance premium. The scheme is available through a panel of participating lenders, and it applies to both new and established homes, subject to property price caps. For the Central Coast, classified as a regional centre in NSW, the price cap is $1,500,000. If you're considering this option, speaking with a mortgage broker who works with participating lenders can help you understand whether you qualify and how the application process works. More detail on the first home buyers page.

Deposit sources beyond your savings account

Your deposit doesn't have to come entirely from a savings account. Lenders accept funds from a range of sources, provided you can document where the money came from. The First Home Super Saver Scheme allows you to make voluntary contributions into your superannuation fund and apply to release up to $50,000 toward your deposit, with those contributions taxed at 15% rather than your marginal rate. You'll need a determination from the ATO before you can access the funds, and the process takes time, so it's not something you can arrange at the last minute.

Equity in an existing property can also be used as a deposit if a family member is willing to act as a guarantor. In this arrangement, the guarantor uses the equity in their home to cover part or all of your deposit, allowing you to borrow up to 100% of the purchase price without LMI in some cases. The guarantor's liability is limited to the amount they guarantee, not the full loan amount, but their property is at risk if you default. This approach works for buyers who have stable income and can service the loan but haven't yet accumulated a large cash deposit.

Fixed, variable, or split structures with a smaller deposit

The size of your deposit doesn't limit you to a variable rate loan. Lenders offer fixed, variable, and split rate options at all deposit levels, though the interest rate you're offered will depend on your loan-to-value ratio. A borrower with a 10% deposit will generally pay a higher rate than a borrower with a 20% deposit, all else being equal, because the lender views the loan as higher risk.

A split loan structure allows you to fix part of your loan and keep part on a variable rate, giving you some certainty around repayments while retaining the flexibility to make extra repayments on the variable portion. This can be particularly useful if you expect your income to increase or if you want to build equity more quickly without being locked into a fixed rate that restricts additional payments. If you're uncertain which structure suits your situation, the team at CoastFin can compare the rates and features available from lenders across Australia and recommend an approach that aligns with your goals. A loan health check can also help if you already have a loan and want to assess whether your current structure is still working for you.

When a larger deposit makes sense, and when it doesn't

Saving a larger deposit reduces your loan amount, lowers your LMI cost or eliminates it entirely, and may give you access to better interest rate discounts. But it also delays your entry into the property market, and during that delay, property values may rise faster than your savings grow. The decision to wait and save more, or to purchase sooner with a smaller deposit, depends on your circumstances and the market you're buying in.

In areas where property values are rising steadily, purchasing sooner with a 10% deposit and paying LMI may result in a lower overall cost than waiting two years to save 20%, only to find that the property you want has increased in value by more than the LMI premium would have cost. On the other hand, if you're buying in a stable or softening market, taking the time to save a larger deposit can reduce your debt and your exposure to interest rate movements.

Call one of our team or book an appointment at a time that works for you. We'll assess your deposit, your borrowing capacity, and the loan options available to you, and help you move forward with confidence.

Frequently Asked Questions