What Are Deposit Requirements for a Home Loan?

A deposit is the upfront cash you contribute toward the purchase price, with most lenders asking for at least 5% to 20% depending on your circumstances.

The percentage you put down affects not just whether you're approved, but what you'll pay in Lenders Mortgage Insurance, which lenders will consider your application, and how much flexibility you'll have with loan features. For first home buyers in Melbourne and across Australia, understanding these thresholds makes the difference between waiting another two years or moving forward now with a clear plan.

The 20% Threshold and Why It Exists

Lenders use 20% as the point where they no longer require Lenders Mortgage Insurance. Below that level, you're borrowing more than 80% of the property's value, which means the lender takes on additional risk if the market shifts or you default. LMI is a one-off premium that protects the lender, not you, and it can add thousands to your upfront costs or be capitalised into the loan amount.

Consider a buyer looking at a unit in Melbourne's inner north. With a 15% deposit, they'd face an LMI premium that could run between $5,000 and $15,000 depending on the loan amount and lender. That same buyer with 20% down avoids the charge entirely. The deposit percentage also influences the interest rate some lenders offer, though the difference is often smaller than many buyers expect.

What Counts as Genuine Savings

Lenders distinguish between genuine savings and other acceptable deposit sources. Genuine savings means money you've accumulated over at least three months in your own accounts, such as a transaction or savings account, term deposit, or shares held in your name. This demonstrates a pattern of saving rather than a sudden injection of cash.

Most lenders want to see at least 5% of the purchase price in genuine savings, even if the remainder of your deposit comes from a gift or a family guarantee. In our experience, buyers who rely entirely on gifted funds without any demonstrated savings history often face more scrutiny during assessment, particularly if their income is variable or they're self-employed.

Using the First Home Guarantee or Help to Buy Scheme

The First Home Guarantee allows eligible buyers to purchase with as little as 5% deposit without paying LMI, provided they meet the income caps and property price limits. For Melbourne buyers, the property price cap sits at $800,000, which opens up options in growth corridors and some established suburbs further from the CBD.

The Help to Buy scheme goes further by having the government take an equity share in the property, which reduces the loan amount you need to borrow. Both schemes have annual allocation limits and specific eligibility criteria around income, property type, and whether you've owned property before. They're worth exploring if you're close to the 5% mark but not yet at 10% or higher.

When Family Members Contribute to Your Deposit

Gifts from parents or other immediate family members are widely accepted by lenders, though you'll need a signed declaration confirming the funds are a gift, not a loan that needs to be repaid. Some lenders also accept non-genuine savings sources like inheritances, proceeds from selling assets, or even the First Home Super Saver Scheme withdrawal.

The catch is that most lenders still want to see some portion of the deposit accumulated through your own savings. A buyer relying entirely on a $50,000 gift from parents might be asked to show at least $10,000 to $15,000 saved independently over the preceding months. This varies between lenders, and some are more flexible than others depending on your overall financial position.

How a Guarantor Can Remove the Deposit Barrier

A guarantor loan involves a family member using equity in their own property to support your application, which can reduce or eliminate the need for a cash deposit altogether. The guarantor doesn't hand over money, they offer their property as additional security, which allows you to borrow up to 100% of the purchase price without LMI in some cases.

This option works well when a parent or close relative owns property outright or has significant equity, and they're comfortable with the arrangement. The guarantee is typically limited to a portion of the loan and can be removed once you've built enough equity through repayments and capital growth. It's not without risk for the guarantor, so clear communication and formal advice are essential before proceeding.

What a Low Deposit Means for Your Loan Structure

Borrowing with a low deposit often means fewer lenders will compete for your business, which can limit your access to discounted rates or premium loan features like offset accounts. Some lenders reserve their lowest rates for borrowers at 80% LVR or below, while others price more aggressively in the higher LVR space to attract first home buyers.

You may also face restrictions around loan types, such as limited access to interest-only terms or construction loans, depending on how much deposit you're putting down. The trade-off is that you can enter the market sooner rather than waiting years to hit the 20% threshold, and in a rising market, the capital growth during that time can outweigh the cost of LMI.

Deposit Requirements for Investment Properties

If you're buying an investment property rather than an owner-occupied home, lenders typically ask for a higher deposit, often 10% minimum and more commonly 20% to access the full range of loan products. Serviceability is assessed more conservatively for investors, with rental income shaded down to account for vacancy periods and lenders applying higher interest rate buffers.

The deposit can come from equity in an existing property rather than cash, which is how many buyers move from one property to two without needing to save another five-figure sum. Releasing equity requires a valuation and an assessment of your borrowing capacity, but it's a common path for those looking to expand their portfolio.

If you've been saving for a while but haven't hit the 20% mark, or if your deposit is coming from a mix of savings, family support, and a government scheme, call one of our team or book an appointment at a time that works for you. We'll run through what lenders will accept, what your options look like, and how to structure the application so you're putting your deposit to work in the most effective way.

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