One of the first questions almost every property buyer asks is:
"How much deposit do I actually need?"
You've probably heard that you need a 20% deposit to buy property in Australia. While 20% can provide certain advantages, it isn't necessarily the only option.
Depending on the lender, type of property, your financial circumstances and whether you're buying a home or investment property, it may be possible to purchase with a smaller deposit.
But there's an important distinction between the minimum deposit a lender may accept and the amount you should realistically have available to complete the purchase.
Your deposit is only one part of the equation. You may also need to budget for stamp duty, conveyancing, inspections, loan costs and other purchasing expenses.
Here's what Australian property buyers need to understand.
A property deposit is the amount of your own funds or eligible equity that contributes towards the purchase price, with the remaining amount generally funded through a home loan.
For example, if you purchase a property for $600,000 with a 20% deposit:
Purchase price: $600,000
20% deposit: $120,000
Loan amount: $480,000
If you purchased the same property with a 10% deposit:
10% deposit: $60,000
Indicative loan amount: $540,000
The smaller your deposit, the larger the proportion of the property's value you need to finance.
This brings us to an important lending term: Loan-to-Value Ratio (LVR).
LVR represents the loan amount as a percentage of the property's value accepted by the lender.
The basic calculation is:
Loan Amount ÷ Property Value × 100 = LVR
For example:
Property value: $600,000
Loan amount: $480,000
LVR:
$480,000 ÷ $600,000 × 100 = 80%
If you contribute a 10% deposit and borrow approximately 90% of the property's value, the LVR would be around 90%.
Generally, a higher LVR means the lender is financing a larger proportion of the purchase.
This can affect lending criteria, available loan products, interest rates and whether Lenders Mortgage Insurance may apply.
Not necessarily.
A 20% deposit is often discussed because it results in an 80% LVR before purchasing costs.
This can have several potential advantages, including:
However, waiting until you have exactly 20% isn't always necessary or appropriate.
Some lenders may consider applications with smaller deposits, depending on the borrower's circumstances and lending criteria.
The important question is not simply:
"Do I have 20%?"
It is:
"What deposit is appropriate for my financial position and property strategy?"
Here's how a 20% deposit changes at different property prices:
| Property Price | 20% Deposit | Indicative 80% Loan |
|---|---|---|
| $400,000 | $80,000 | $320,000 |
| $500,000 | $100,000 | $400,000 |
| $600,000 | $120,000 | $480,000 |
| $700,000 | $140,000 | $560,000 |
| $800,000 | $160,000 | $640,000 |
| $1,000,000 | $200,000 | $800,000 |
These figures don't include stamp duty or other purchasing costs.
That's an important point because someone purchasing a $600,000 property may need more than $120,000 available even if they intend to contribute a 20% deposit.
Depending on your circumstances and lender, financing a property with around a 10% deposit may be possible.
For a $600,000 property:
10% = $60,000
Compared with a 20% deposit of $120,000, that's a difference of $60,000.
For some buyers, purchasing with a smaller deposit can mean entering the market sooner rather than spending additional years saving.
However, a smaller deposit generally means:
Whether buying sooner outweighs these additional costs depends on the buyer's circumstances.
Some borrowers may be able to purchase with approximately a 5% deposit, depending on lender requirements and eligibility for particular government-supported home buyer programs.
For example:
Property price: $600,000
5% deposit:
$30,000
However, this doesn't mean every buyer can borrow the remaining 95%.
Low-deposit lending can depend on factors such as:
Government home buyer programs also have specific eligibility criteria, property-price limits and other conditions that can change over time.
Buyers should check the current rules before relying on a particular scheme.
Lenders Mortgage Insurance (LMI) is insurance that generally protects the lender, not the borrower, if the borrower defaults and the lender experiences a loss.
LMI can commonly become relevant when borrowing above 80% of a property's value, although requirements differ between lenders and loan scenarios.
The cost can depend on factors such as:
In some cases, LMI may be added to the loan rather than paid entirely upfront, subject to lender requirements.
This can reduce the immediate cash required but increases the amount borrowed.
Not necessarily.
Many buyers automatically assume LMI should be avoided at all costs.
But it needs to be considered within the wider strategy.
Imagine Buyer A waits several years to build a 20% deposit.
Buyer B purchases earlier with a smaller deposit and pays LMI.
If property prices increase significantly during that period, Buyer B may benefit from having entered the market earlier.
However, property prices could also remain flat or decline.
There is no guarantee that purchasing sooner will produce a better financial outcome.
The right decision depends on the cost of LMI, loan repayments, market conditions, borrowing capacity and the buyer's financial position.
This is where many buyers underestimate how much money they need.
Suppose you've saved $100,000.
That doesn't necessarily mean the entire $100,000 can be used as your property deposit.
You may also need to allow for expenses such as:
The exact costs vary considerably depending on the state or territory, property price, buyer type and transaction.
Stamp duty, also known as transfer duty in some jurisdictions, can represent one of the largest additional costs of buying property.
The amount varies according to:
First-home buyers may qualify for concessions or exemptions in some jurisdictions, subject to eligibility requirements.
Investors generally need to factor applicable transfer duty into their purchasing costs.
Because rules and thresholds can change, buyers should check the current requirements for the state or territory in which they're purchasing.
Imagine you're purchasing a $600,000 investment property and planning to contribute a 20% deposit.
Deposit:
$120,000
You may then need additional funds for applicable:
+ Stamp duty
+ Conveyancing
+ Building and pest inspection
+ Other settlement and purchasing costs
Your total cash requirement could therefore be considerably higher than $120,000.
This is why buyers shouldn't determine their maximum purchase price by simply multiplying their savings by five.
The entire transaction needs to be considered.
Investment property deposit requirements depend on the lender, borrower and property.
A 20% deposit is commonly used as a benchmark because it generally represents an 80% LVR before costs.
However, investors may potentially purchase with a smaller deposit where lender criteria allow.
Investors should also consider whether putting all available savings into the deposit is strategically sensible.
For example, if you have $150,000 available, using every dollar towards the purchase may leave no financial buffer for:
Having a larger deposit can reduce debt, but retaining appropriate cash reserves can also be important.
Potentially, yes.
Existing property owners may be able to access equity from their home or another investment property to assist with the deposit for their next purchase.
Equity is broadly calculated as:
Property Value – Existing Debt = Total Equity
However, total equity isn't necessarily the same as usable equity.
As an illustrative example:
Property value: $800,000
Current mortgage: $500,000
Total equity:
$300,000
Using an 80% LVR as a simple illustration:
$800,000 × 80% = $640,000
Potential usable equity:
$640,000 – $500,000 = $140,000
Subject to lender valuation, serviceability and approval, an investor may potentially be able to access some of this equity towards another property purchase.
Accessing equity involves additional borrowing, so it isn't the same as using cash savings.
Having enough for a deposit doesn't automatically mean you'll qualify for the required loan.
Consider someone with:
$150,000 in savings
They may appear to have enough funds for a substantial deposit.
But the lender still needs to determine whether their income can support the proposed mortgage.
Conversely, another buyer may have strong income and borrowing capacity but insufficient savings for the required deposit and purchasing costs.
Successful property finance requires both:
Sufficient funds to complete the purchase
and
Sufficient borrowing capacity to service the loan.
Depending on the lender and LVR, borrowers may need to demonstrate that part of their deposit consists of genuine savings.
This can generally refer to funds that have been held or accumulated over a period of time.
Depending on lender policy, examples may include:
Other sources of funds, such as gifts, may be treated differently depending on the lender and loan structure.
Requirements vary, so borrowers using a smaller deposit should establish the relevant lending criteria early.
Not automatically.
A larger deposit can reduce your loan amount and repayments.
But there can also be value in retaining liquidity.
Imagine you have $180,000 available.
You could potentially put almost all of it towards the purchase.
But then what happens if:
Investors need to balance reducing debt with maintaining an appropriate financial buffer.
Saving a larger deposit can reduce borrowing and potentially avoid costs such as LMI.
But waiting also has a potential opportunity cost.
Imagine you're saving towards a $600,000 property.
You currently have $70,000 but decide you won't buy until you've accumulated significantly more.
If the type of property you're targeting increases in price while you're saving, your required deposit may also increase.
On the other hand, property prices aren't guaranteed to rise.
This is why the decision should be based on your finances and strategy rather than the assumption that waiting or buying immediately will always produce a better outcome.
Deposit size can influence more than the loan.
It can also influence the types of properties and locations realistically available to you.
For example, someone with $80,000 available may have difficulty purchasing a high-priced capital-city house once deposit requirements and purchasing costs are considered.
Rather than stretching finances excessively, they might investigate more affordable markets where their available funds provide greater flexibility.
This is one reason property strategy and finance should work together.
Understanding your financial position can help determine which markets and property types are realistic.
First-home buyers may have access to government programs that reduce the deposit required in eligible circumstances.
Available support can change over time and may include:
Eligibility can depend on factors such as:
Because government schemes and thresholds change, first-home buyers should verify the current rules before making purchasing decisions.
An owner-occupier may primarily be focused on purchasing the home they want to live in.
An investor should also consider how the deposit affects their broader portfolio.
For example, putting a very large deposit into property number one may reduce mortgage repayments.
But it may also leave less cash available for property number two.
On the other hand, using a very small deposit can increase debt and potentially put greater pressure on cash flow and borrowing capacity.
The appropriate balance depends on:
There isn't one deposit percentage that suits every investor.
Consider a $600,000 property.
Ignoring purchasing costs and LMI for illustration:
Deposit: $120,000
Loan: $480,000
Deposit: $60,000
Loan: $540,000
Deposit: $30,000
Loan: $570,000
The smaller the deposit, the larger the loan.
That means deposit size can directly influence:
The cheapest way to enter the market upfront isn't necessarily the cheapest way to finance the property over the long term.
Some buyers delay investigating their options because they believe they cannot purchase without a 20% deposit.
The deposit isn't the only money required.
This can leave no emergency buffer after settlement.
Borrowing capacity is equally important.
If purchasing with a higher LVR, understand whether LMI applies and what it may cost.
Knowing your realistic purchasing budget first can make the property search far more efficient.
Deposit and lending policies can differ between lenders.
Before starting your property search, consider the following:
| Question | Why It Matters |
|---|---|
| How much have I saved? | Establishes your available funds |
| What is my borrowing capacity? | Helps determine your realistic purchase price |
| What deposit will the lender require? | Determines the amount needed upfront |
| Will LMI apply? | Could add to the cost of borrowing |
| How much is stamp duty? | Can be a significant purchasing cost |
| What other purchase costs apply? | Prevents unexpected expenses |
| Do I qualify for any concessions? | May reduce upfront costs |
| Do I have usable equity? | Could potentially assist with another purchase |
| How much buffer will remain? | Helps manage unexpected costs |
| What are my future plans? | Important for investors building portfolios |
There isn't one answer that applies to every Australian property buyer.
A 20% deposit is commonly used as a benchmark and can provide several benefits.
But depending on your circumstances, lender and eligibility, purchasing with a smaller deposit may also be possible.
The more useful question is:
How much do I need to complete the purchase comfortably while maintaining a sustainable financial position?
That calculation should consider:
Deposit + purchasing costs + borrowing capacity + repayments + financial buffer.
Understanding all five before you start making offers can give you a much clearer picture of what you can realistically afford.
At DDP Finance, we help buyers understand more than simply the interest rate on a home loan.
Before purchasing, it's important to understand how your deposit, borrowing capacity and loan structure work together.
Our team can help assess:
For property investors, we can also consider how today's finance decision may affect the ability to continue building a portfolio.
You may be closer to purchasing than you think, or it may make sense to strengthen your financial position before proceeding.
Either way, having a clear finance assessment gives you the information needed to make a more informed decision.
Not necessarily. Some lenders may accept smaller deposits depending on the borrower, property and lending criteria. A 20% deposit is commonly discussed because it generally results in an 80% LVR before purchasing costs.
Potentially. Some borrowers may qualify for lending with around a 10% deposit, although LMI and other lender requirements may apply.
Some eligible borrowers may be able to purchase with around a 5% deposit through particular lending arrangements or government-supported schemes. Eligibility and conditions apply.
LMI is insurance that generally protects the lender if the borrower defaults and the lender experiences a loss. It can commonly apply to higher-LVR loans.
No. Stamp duty and other purchasing costs generally need to be considered separately when calculating the total funds required.
It depends on the lender, property, loan structure and your financial circumstances. While 20% is a common benchmark, other lending structures may be available.
Potentially. Existing property owners may be able to access usable equity to help fund another purchase, subject to valuation, borrowing capacity and lender approval.
Not necessarily. A larger deposit reduces the amount borrowed, but using all available cash could leave you without an appropriate financial buffer.
Genuine savings generally refer to funds you've accumulated or held over a period of time. The definition and evidence required can vary between lenders.
Doing so can help establish a realistic purchase budget, expected deposit requirements and the potential lending options available before you begin making offers.
