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How Much Do You Need for a House Deposit?

How much you have for a deposit is a vital part of the loan decision process.  Find out the amount you might need right here with Savvy.

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, updated on August 7th, 2023       

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If you’re considering purchasing a property either to live in or for an investment, you’ll almost certainly need to apply for a home loan. Before you can apply, though, you’ll need to come up with a sizeable deposit to contribute to the agreed value of the house. But how large a deposit will you actually need to buy a house?

Read about all aspects of home loan deposits right here with Savvy, including loan-to-value ratios (LVR) and how Lenders Mortgage Insurance (LMI) can help you buy a home with a smaller deposit. You can find lenders offering loans with smaller or even no deposit required if you’re struggling to save up for your first deposit by comparing offers here.

How much do I need for a deposit to buy a house in Australia?

Most lenders require 20% of your property’s value as a deposit.  This means you can usually borrow 80% of the property’s agreed value, described as 80% LVR.  A 20% deposit is regarded as a sensible, manageable total for borrowers to contribute to the cost of their home.   

It’s always best to save up as much as possible for your home deposit. The bigger your deposit, the less you’ll need to borrow and subsequently pay back (with interest) to the lender.  A larger deposit will also ensure you’re a prime candidate for the lowest rates, as you’re reducing the lender’s risk by contributing more upfront. 

In summary, a smaller loan principal means lower monthly repayments and less interest to be paid throughout your home loan. 

The table below shows how much you can save in the long run by increasing the size of your deposit.  This example uses a $500,000 home loan, with a 30-year term and a 3% p.a. interest rate.  Note that this interest rate is an example only, and even larger savings are possible with a lower interest rate:

Deposit percentage provided Monthly repayments Total amount of loan repaid over 30 years Total amount of interest paid Total interest saving compared to a 20% deposit
20% ($100,000)
$1,686.42
$607,109.81
$207,109.81
N/A
25% ($125,000)
$1,581.02
$569,165.45
$194,165.45
$12,944.36
30% ($150,000)
$1,475.61
$531,221.08
$181,221.08
$25,888.73
35% ($175,000)
$1,370.21
$493,276.72
$168,276.72
$38,833.09
40% ($200,000)
$1,264.81
$455,332.36
$155,332.36
$51,777.45

What if I can’t afford a 20% deposit for my home loan?

It’s not always possible to save up a large sum for a deposit. However, it’s possible to apply for a home loan with a deposit of as little as 5% in certain circumstances, particularly if your credit rating is good and your employment situation is stable.  You can find lenders who offer loans with a sub-20% deposit if you’re prepared to pay Lenders Mortgage Insurance.

LMI is an insurance premium charged to the borrower to add another layer of security for the lender, protecting them in the event of a loan default.   Even though it’s insurance to protect the lender, it’s the borrower who is required to pay the insurance premium.  Paying LMI can substantially increase the cost of your loan overall. It’s important to note, though, that home loans with just a 5% deposit (or 95% LVR) are typically reserved for customers with a strong financial history.

Using the same $500,000 loan with a 30-year term and 3% p.a. interest rate, you can see how LMI affects how much you pay for your home loan.

Deposit Monthly repayments Interest repaid Additional LMI Total extra cost compared to 20% deposit
20% ($100,000)
$1,686.42
$207,109.81
$0
N/A
15% ($75,000)
$1,791.82
$220,054.17
$4,887.50
$17,831.86
15% ($75,000)
$1,791.82
$220,054.17
$4,887.50
$17,831.86
10% ($50,000)
$1,897.22
$232,998.53
$8,820
$34,708.72
5% ($25,000)
$2,002.62
$245,942.90
$17,480
$56,313.09

*Additional home loan fees not included in repayment estimates. LMI varies between lenders.

How to pay less than 20% for your house deposit and avoid LMI

Frequently asked questions about home loan deposits

What is a deposit bond?

A deposit bond is a financial agreement that acts in place of a deposit and guarantees the borrower will pay the set amount by a certain date. These are useful for those who don’t have the cash up front to pay for a property, but it’s worth noting that not all lenders or vendors will accept them.

I’ve got $10,000 saved up.  Is this enough for a house deposit?

That will depend on the value of the property you want to buy, whether this is your first home and what your overall financial situation is.

If you’re a first home buyer, you may qualify for a grant of up to $15,000 from your state government, which would increase your overall deposit to $25,000.  As a 20% deposit, this would give you borrowing power of $125,000.   If you were to take out LMI and only submit a 5% deposit, this could potentially give you $500,000 borrowing power. If you’re not a first-time buyer, though, the most valuable property you’re likely to be approved for is $200,000 with a 5% deposit.

When do I have to pay my house deposit?

If you buy an existing home through a private sale, the first step will be for you to sign and exchange contracts.  This contract will specify how large a deposit is required and the date it has to be paid by to make it legally binding. 

Once the sales contract is signed, you’ll pay your deposit to the seller’s real estate agent.  Quite often, the entire deposit doesn’t need to be handed over at the time of contract exchange: a portion of it is likely to be included in the settlement agreement with your conveyancer.

How do I pay my house deposit?

Generally, you’ll pay your house deposit through electronic funds transfer with a cheque or deposit bonds. It’s best to arrange the payment method earlier to avoid any confusion or time-wasting on the day you exchange contracts or on the final settlement day.

Should I create a budget to help me determine how much I’ll need for a deposit?

Absolutely – budgeting is a great way to work out your financial capabilities ahead of time. You should track your earnings and expenses to find out where you can reduce spending and determine how much you can save to grow your deposit.

How do I work out how much I can borrow?

Firstly, you’ll need to gain an understanding of your disposable income – that is, how much you can afford to pay once all your other financial commitments have been honoured.  A household budget spreadsheet will help you calculate your income and expenses and see how much you may be able to afford to pay on your home loan.

Once you have an idea about what repayments you can afford, you can use Savvy’s home loan repayment calculator to work out how much you may be able to borrow based on the term of the loan, its interest rate and the repayments you can afford.

Will I need a larger deposit for a house and land package?

No, you won’t need a larger deposit if you want to buy land and build your own home.  Many lenders offer specialist construction loans with low deposit requirements and very low interest rates.  These loans can mean you pay interest-only on the principal that you use to pay your builder in stages as construction progresses.  Once the dwelling is complete, the loan reverts to a traditional principal and interest loan.  In addition, many builders now offer house and land packages for first-time home buyers which only require you to pay a small deposit.

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