Unlock the Secrets to Investment Property Deposits

How Much Deposit Do You Need for an Investment Property?

Most lenders require a minimum 10% deposit for an investment property, but you'll also need to cover stamp duty and other upfront costs separately. If you're putting down less than 20%, Lenders Mortgage Insurance will apply and can add thousands to your borrowing costs.

Consider a couple who owns a home in Burwood and wants to buy a unit in Clayton as their first investment. They've found a property and have $60,000 saved, which covers the 10% deposit. But when they factor in stamp duty, conveyancing, building and pest inspections, and LMI, the total upfront cost climbs to around $85,000. That gap catches a lot of first-time investors off guard.

The difference between a 10% and 20% deposit isn't just about avoiding LMI. It also affects your loan to value ratio, which influences the interest rate you're offered, your borrowing capacity, and how lenders assess your application. If you're close to 20%, it's often worth waiting a few more months rather than paying LMI and locking in a higher rate.

Can You Use Equity from Your Home as a Deposit?

You can use equity from your existing home to fund the deposit and costs on an investment property without needing to sell or save additional cash. Lenders will let you borrow up to 80% of your home's value in most cases, sometimes 90% with LMI, and use the surplus as your investment deposit.

In our experience, this is one of the most common ways couples move into property investment. You're not liquidating assets or waiting years to build a separate savings pool. Instead, you're leveraging what you've already built. If your Burwood home is now worth $950,000 and you owe $450,000, you have around $500,000 in equity. Borrowing up to 80% of the property value means you could access roughly $310,000, which leaves plenty of room to fund a deposit, cover costs, and still maintain a buffer.

The lender will assess your ability to service both loans, so your income, existing commitments, and the expected rental income all factor in. You'll also need a valuation on your current property, and if the market has softened since you bought, that affects how much you can access. If you're considering this approach, speaking to a broker early helps you understand what's realistic before you start looking at properties. You can read more about releasing equity to purchase on our site.

What Counts as Genuine Savings for an Investment Loan?

Genuine savings are funds you've accumulated over time in your own accounts, typically at least 5% of the property's purchase price held for a minimum of three months. Lenders want to see that you can manage money consistently, not just receive a one-off gift or windfall right before you apply.

Gifts from family, proceeds from selling assets like shares or a car, and even some work bonuses can be used as part of your deposit, but they don't always qualify as genuine savings. Each lender has different rules. Some will accept gifted funds if they're declared and accompanied by a statutory declaration. Others won't count them toward the genuine savings requirement at all, though they'll still let you use them for the deposit.

If you're using equity rather than cash savings, the genuine savings test often doesn't apply in the same way. Your track record of meeting mortgage repayments on your existing home usually satisfies the lender's need to see financial discipline. But if you're combining equity with some cash and the lender is assessing you as a higher-risk borrower for any reason, they may still ask for proof of genuine savings on top of the equity component.

How Do Lenders Assess Rental Income When Calculating Borrowing Capacity?

Lenders include rental income in your borrowing capacity calculation, but they don't use the full amount. Most lenders apply a shading rate of around 80%, meaning if the property is expected to generate $500 per week in rent, they'll only count $400 in your serviceability assessment.

This shading accounts for vacancy periods, maintenance costs, and the possibility that the tenant doesn't pay. It's a conservative measure, but it has a real impact on how much you can borrow. If you're relying on rental income to make the numbers work and the lender only recognises 80% of it, your borrowing capacity might fall short of what you expected.

Some lenders are more generous and will shade at 90%, particularly for properties in high-demand rental areas or where you can demonstrate strong occupancy rates. Location matters, as does the type of property. A two-bedroom unit close to Monash University will typically have a lower vacancy rate than a three-bedroom townhouse in a less connected suburb, and lenders factor that in when they assess your application. The investment loans page has more detail on how different lenders structure their assessments.

Do You Need to Declare the Purpose of the Loan When You Apply?

You must tell the lender if the property is for investment purposes. Applying for a home loan and then renting out the property without notifying your lender can breach your loan contract and, in some cases, lead to the loan being recalled.

Investment loans are priced differently to owner-occupier loans. The interest rate is typically higher, sometimes by 0.20% to 0.50%, because lenders see investment properties as higher risk. You're more likely to default on an investment loan than your own home if financial pressure increases, so lenders price that risk into the product.

There's no benefit to misrepresenting your intentions. The rate difference is something you factor into your investment calculations from the start, and being upfront means you're applying for the right product with the right features, like interest-only repayment options or the ability to claim interest as a tax deduction. If you're uncertain about how to structure the loan or whether to fix or stay variable, a conversation with a broker will clarify which investment loan options suit your situation without locking you into something inflexible.

Should You Choose Interest-Only or Principal and Interest Repayments?

Interest-only repayments reduce your monthly outgoings and improve cash flow, which is why many investors choose this structure for the first few years. You're only paying the interest portion of the loan, not reducing the principal, which keeps repayments lower and maximises your ability to claim the interest as a tax deduction.

Principal and interest repayments build equity in the property over time and reduce your overall debt, but they cost more each month. For a couple holding down full-time jobs while managing a mortgage on their own home, the difference between a $2,200 monthly repayment on an interest-only loan and a $2,800 repayment on principal and interest can determine whether the investment is sustainable in the short term.

Most lenders allow interest-only terms of up to five years on investment loans, after which the loan reverts to principal and interest unless you apply to extend. If your plan is to hold the property long-term and build wealth through capital growth, switching to principal and interest after the initial period makes sense. If you're planning to sell or refinance within a few years, interest-only might give you the flexibility you need without tying up cash flow. The interest-only loan page covers the mechanics and when each option works.

How Do the Recent Federal Budget Changes Affect Your Deposit Strategy?

If you're buying an established investment property, the changes to negative gearing and capital gains tax announced in the May 2026 Federal Budget will apply to you from 1 July 2027. Losses from the property can only be offset against rental income or capital gains from other residential property, not against your wages.

This changes the affordability equation. If you were relying on negative gearing to reduce your taxable income and make the investment viable in the early years, that benefit is now more limited. You can still carry forward unused losses to offset future rental income or capital gains, but the immediate tax relief that made some investments feel more affordable is no longer available in the same way.

The capital gains tax discount is also changing. Instead of the 50% discount that applied to assets held for more than 12 months, gains will be indexed for inflation and subject to a minimum 30% tax from 1 July 2027. If you're buying a new build, you can choose between the old 50% discount and the new indexed method, whichever works better for you. But for established properties purchased after Budget night, the new rules apply with no choice.

These changes don't affect your deposit size directly, but they do affect the financial return you can expect and the structure you should consider. If you were planning to negatively gear an established unit and claim the loss against your salary, the numbers now look different. Speaking to a tax professional alongside your broker will give you a clearer picture of what works under the new rules and whether you should adjust your deposit or property type accordingly.

What Other Upfront Costs Should You Budget For?

Stamp duty is the largest cost after your deposit, and it varies by state. In Victoria, stamp duty on an investment property is calculated at the standard rate without the concessions available to first home buyers. For a property purchased at $600,000, expect to pay around $31,000 in stamp duty alone.

Conveyancing, building and pest inspections, loan establishment fees, and valuation costs typically add another $3,000 to $5,000. If you're buying in a strata building, you'll also need to budget for the first quarter's body corporate fees, which can range from $800 to $2,000 depending on the complex.

Lenders Mortgage Insurance is the other major cost if your deposit is below 20%. LMI premiums vary by lender and loan size, but for a 10% deposit on a $600,000 purchase, you're looking at roughly $15,000 to $20,000. Some lenders let you capitalise the LMI into the loan rather than paying it upfront, but that increases your loan amount and your ongoing repayments. If you're planning to use equity and borrow more than 80% against your existing home, LMI may apply to that loan as well, depending on how the lender structures the facility.

Call one of our team or book an appointment at a time that works for you. We'll walk through your deposit options, calculate your borrowing capacity with rental income included, and help you structure the loan in a way that aligns with your investment goals and the current tax environment.

Frequently Asked Questions