Key Takeaways
Saving a 20% deposit for a home in Australia has become increasingly difficult. With median house prices sitting above $900,000 in Melbourne and around $700,000 in Geelong, a traditional 20% deposit means saving $140,000-$180,000, a figure that can take a decade or more for many Australians to accumulate.
The good news is that you don’t need a 20% deposit to buy a home. There are multiple pathways to home ownership with deposits as low as 2-5%, and some options that allow you to buy with no deposit at all. In this comprehensive guide, we explain every low deposit option available in Australia, including the costs, risks, and strategies to make it work.
Did you know? Over 40% of first home buyers in Australia purchase with less than a 20% deposit. Government schemes and LMI make this possible for thousands of buyers every year.
A low deposit home loan is any mortgage where the borrower contributes less than 20% of the property’s purchase price as a deposit. The 20% threshold is significant because it’s the point at which lenders typically waive the requirement for Lenders Mortgage Insurance (LMI).
The loan-to-value ratio (LVR) is the key metric lenders use. If you have a 10% deposit, your LVR is 90%. If you have a 5% deposit, your LVR is 95%. Most Australian lenders will lend up to 95% LVR with LMI, while some specialist lenders and government-backed schemes allow up to 98% LVR.
Here’s how different deposit levels work in practice for a $600,000 property:
| Deposit % | Deposit Amount | Loan Amount | LVR | LMI Required? |
|---|---|---|---|---|
| 20% | $120,000 | $480,000 | 80% | No |
| 15% | $90,000 | $510,000 | 85% | Yes |
| 10% | $60,000 | $540,000 | 90% | Yes |
| 5% | $30,000 | $570,000 | 95% | Yes |
| 2% | $12,000 | $588,000 | 98% | Yes (or guarantee) |
Lenders Mortgage Insurance is a one-off premium that protects the lender (not you) if you default on your loan. It’s required by most lenders when your deposit is less than 20%. Despite protecting the lender, the cost is passed on to the borrower.
LMI costs vary significantly based on your loan amount, LVR, and the insurer used. Here’s a general guide to LMI costs:
| Loan Amount | 90% LVR (10% deposit) | 95% LVR (5% deposit) |
|---|---|---|
| $400,000 | $4,500 to $7,000 | $10,000 to $14,000 |
| $500,000 | $6,000 to $9,500 | $13,000 to $18,000 |
| $600,000 | $8,000 to $12,500 | $16,000 to $23,000 |
| $700,000 | $10,000 to $15,000 | $20,000 to $28,000 |
Most borrowers choose to capitalise LMI onto their loan, meaning it’s added to the total loan balance rather than paid upfront. While this avoids an immediate out-of-pocket expense, you’ll pay interest on the LMI amount over the life of the loan.
It’s worth noting that LMI costs vary between lenders. Some lenders use Genworth (now Helia), others use QBE, and a few self-insure. A broker can compare which lender offers the lowest LMI premium for your specific situation. The difference can be thousands of dollars.
Pro Tip: LMI is not transferable between lenders. If you refinance, you may need to pay LMI again unless your new LVR is below 80%. Factor this into your long-term plans before choosing to capitalise LMI.
The Australian Government offers several schemes designed to help buyers enter the market with a low deposit while avoiding LMI. These are administered by Housing Australia (formerly the National Housing Finance and Investment Corporation).
First Home Guarantee (FHBG)
The First Home Guarantee allows eligible first home buyers to purchase with as little as 5% deposit without paying LMI. The government guarantees up to 15% of the property value, bridging the gap between your 5% deposit and the 20% threshold. There are 35,000 places available each financial year. To be eligible, you must be an Australian citizen or permanent resident aged 18+, have not previously owned property in Australia, earn below the income cap ($125,000 for singles or $200,000 for couples), and purchase below the property price cap for your area.
Regional First Home Buyer Guarantee (RFHBG)
Similar to the FHBG but specifically for regional buyers. You must have lived in the region for at least 12 months. This is particularly relevant for buyers in Geelong, the Surf Coast, Ballarat, and other regional Victorian areas. There are 10,000 places available per financial year, with the same income thresholds.
Family Home Guarantee (FHG)
The Family Home Guarantee is for single parents with at least one dependent child, allowing them to purchase with as little as 2% deposit without LMI. This applies to both first home buyers and previous homeowners who don’t currently own property. There are 5,000 places available per financial year.
Real Client Example
A first home buyer from Ocean Grove came to us earning $95,000 per year with $32,000 saved. She wanted to buy a townhouse for $580,000 but thought she needed years more saving. We secured her a place under the First Home Guarantee, meaning her $29,000 deposit (5%) was sufficient with no LMI. Combined with the Victorian First Home Owner Grant of $10,000 for new builds, she moved into her new home with money left over for furniture and settlement costs. Total savings compared to waiting for a 20% deposit: approximately $87,000 in additional savings time, plus she benefited from property price growth during those years.
A family guarantee (also known as a guarantor home loan) allows a family member (usually a parent) to use the equity in their own property as additional security for your loan. This can allow you to borrow up to 100% of the purchase price plus costs, effectively buying with no deposit and no LMI.
How it works: your loan is split into two parts. The main loan (typically 80% LVR) is secured against your new property. The guarantee portion (the remaining amount) is secured against both your property and your guarantor’s property. The guarantor doesn’t make any repayments. They simply provide their property as additional security.
The guarantee can usually be released once you’ve paid down the loan to 80% LVR, which typically takes 2-5 years depending on property value growth and your repayment speed. This means your parents’ obligation is temporary, not permanent.
Victorian first home buyers may be eligible for several state government grants and duty concessions that can significantly reduce the upfront costs of buying:
First Home Owner Grant (FHOG): $10,000 grant for first home buyers purchasing or building a new home valued up to $750,000. This applies to new builds, off-the-plan purchases, and substantially renovated homes.
Stamp Duty Exemption: Full stamp duty exemption for first home buyers purchasing properties valued up to $600,000. Partial concessions apply for properties valued between $600,001 and $750,000. On a $600,000 property, this saves approximately $31,000 in stamp duty.
First Home Buyer Duty Reduction: From November 2024, the Victorian Government has offered additional duty reductions for off-the-plan purchases, further reducing upfront costs for apartment and townhouse buyers.
If you’re working towards a low deposit purchase, these strategies can help you get there faster:
Use the First Home Super Saver Scheme (FHSSS): You can make voluntary contributions to your super fund (up to $15,000 per year, $50,000 total) and later withdraw them for a home deposit. Because super contributions are taxed at just 15% instead of your marginal rate, you effectively save faster. A person earning $85,000 could save an extra $5,000-$7,000 over three years through the tax benefit alone.
Demonstrate genuine savings: Most lenders want to see at least 3-5% of the deposit as genuine savings: money you’ve accumulated over at least three months through regular income or savings habits. This can include savings account balances, term deposits, shares held for 3+ months, or equity in another property.
Consider rentvesting: If buying in your preferred suburb is out of reach, consider purchasing an investment property in a more affordable area while continuing to rent where you want to live. This gets you into the market sooner and allows you to start building equity.
Gifted deposits: Some lenders accept gifted funds from family members as part of your deposit. The gift typically needs to be accompanied by a statutory declaration confirming the funds are a gift and not a loan. Not all lenders treat gifted deposits equally. Some require a minimum genuine savings component alongside the gift.
This is one of the most common questions we get from buyers. The answer depends on your specific circumstances, but here’s how to think about it:
In a market growing at 5-7% per year, a $600,000 property gains $30,000-$42,000 in value annually. If your LMI cost is $15,000 and it takes you an extra two years to save a 20% deposit, you could miss out on $60,000-$84,000 in capital growth, far exceeding the LMI cost. In this scenario, paying LMI to buy sooner is the financially smarter move.
However, in a flat or declining market, the calculus changes. If property values aren’t growing, the urgency to buy sooner is reduced, and saving a larger deposit means lower ongoing repayments and no LMI cost.
Several Australian lenders offer LMI waivers for borrowers in certain professions. If you work in a qualifying field, you may be able to borrow up to 90% LVR (10% deposit) without paying any LMI. This can save you $8,000-$15,000 on a typical loan.
Professions that commonly qualify for LMI waivers include medical practitioners (doctors, dentists, veterinarians, optometrists), legal professionals (solicitors and barristers), qualified accountants (CPA, CA, or CMA), engineers (with relevant professional body membership), mining professionals, and entertainment industry professionals. Each lender has its own list of qualifying professions and specific criteria around minimum income, membership of professional bodies, and maximum loan amounts.
The eligibility criteria vary significantly between lenders. For example, one lender might waive LMI for all registered medical practitioners earning over $150,000, while another may require completion of specialist training. A broker who understands these nuances can match you with the right lender for your specific profession and circumstances.
Many first home buyers focus solely on saving for a deposit and are caught off guard by the additional costs involved in purchasing a property. Here’s what you need to budget for beyond your deposit:
Stamp duty (if applicable): Unless you qualify for a first home buyer exemption, stamp duty is one of the largest upfront costs. On a $700,000 established property in Victoria, expect to pay approximately $37,000 in stamp duty.
Conveyancing/legal fees: A conveyancer or solicitor handles the legal transfer of property. Budget $1,200-$2,500 depending on complexity. We recommend using a qualified conveyancer for every purchase. The cost is minimal compared to the protection they provide.
Building and pest inspections: Essential for established properties. A combined building and pest inspection typically costs $400-$700. Never skip this step: it can reveal structural issues, termite damage, or compliance problems that could cost tens of thousands to fix.
Loan application and settlement fees: Some lenders charge application fees ($0-$600) and settlement fees ($200-$400). Many lenders waive these fees, so ask your broker to factor this into lender comparisons.
Moving costs and immediate repairs: Budget $1,000-$3,000 for removalists, utility connections, and any immediate repairs or changes needed. Having a buffer of $5,000-$10,000 after settlement gives you breathing room for unexpected expenses in those first few months of home ownership.
Total upfront costs guide: For a $600,000 first home purchase in Victoria with 5% deposit, budget approximately $30,000 deposit + $1,500 conveyancing + $500 inspections + $500 miscellaneous = roughly $32,500 minimum. If stamp duty applies, add $31,000.
Can I get a home loan with only 5% deposit?
Yes, most Australian lenders offer loans at 95% LVR (5% deposit). You’ll need to pay Lenders Mortgage Insurance unless you qualify for a government guarantee scheme or have a family guarantor. A broker can help you find the most competitive rate and lowest LMI premium.
What counts as genuine savings for a home loan?
Genuine savings include regular savings accumulated over at least 3 months, term deposits, shares held for 3+ months, and equity in existing property. Gifts from family, tax refunds, inheritance, and proceeds from asset sales are generally not considered genuine savings, though some lenders are more flexible than others.
Can I avoid LMI without a 20% deposit?
Yes, there are three main ways: use a government guarantee scheme (First Home Guarantee, Regional FHBG, or Family Home Guarantee), arrange a family guarantee where a parent provides additional security, or apply with certain lenders that offer LMI waivers for specific professions such as doctors, lawyers, accountants, and engineers.
How much stamp duty will I pay in Victoria?
First home buyers in Victoria pay no stamp duty on properties up to $600,000 and reduced stamp duty on properties between $600,001 and $750,000. For non-first-home buyers, stamp duty on a $600,000 property is approximately $31,000, while a $700,000 property attracts around $37,000 in stamp duty.
Should I wait to save a bigger deposit or buy now?
This depends on your local market conditions, financial stability, and risk tolerance. In a growing market, buying sooner often makes financial sense even with LMI costs, as capital growth can outpace the extra costs of a low-deposit purchase. A broker can model both scenarios for you with current interest rates and market data.
Our experienced brokers compare options across 60+ lenders to find the right solution for your situation.
Director & Senior Finance Broker
With years of experience in mortgage broking and finance, Melanie helps clients across Geelong, the Surf Coast, Melbourne and regional Victoria navigate the complexities of home loans and business finance. Contact our team on 03 9020 2699.
