A 20% home loan deposit is a useful target, but it is not a universal entry requirement. Some first home buyers may be able to purchase with 10% or 5%, subject to lender approval, costs and eligibility for any government support.
The deposit level changes more than the cash needed upfront. It changes your loan-to-value ratio, loan amount, likely repayments, equity from day one, exposure to lenders mortgage insurance and the lenders or products that may be available.
The right question is not “Which percentage is best?” It is “Which option leaves me with an affordable loan, enough cash after settlement and an acceptable reason to buy now rather than keep saving?”
📑 Table of Contents
- What does a 5%, 10% or 20% deposit mean?
- The same $800,000 home at three deposit levels
- Buying with a 5% deposit
- Buying with a 10% deposit
- Buying with a 20% deposit
- The deposit affects five parts of the loan
- The cash deposit and the contract deposit are different
- What counts as an acceptable deposit?
- When a lower valuation changes your percentage
- Should you buy now or keep saving?
- Questions first home buyers ask
- Choose the deposit that supports the whole plan
- Sources and further reading
What does a 5%, 10% or 20% deposit mean?
The percentage normally refers to your contribution towards the lender’s accepted property value. The corresponding base loan-to-value ratio, or LVR, is:
- 5% deposit: approximately 95% LVR
- 10% deposit: approximately 90% LVR
- 20% deposit: approximately 80% LVR.
The simple formula is:
Loan amount ÷ lender-accepted property value × 100 = LVR
If the lender values the property below the contract price, your effective contribution may need to increase. Purchase costs also usually sit outside the percentage. A buyer with a “10% deposit” still needs to allow for transfer duty where applicable, conveyancing, inspections and other settlement costs.
The same $800,000 home at three deposit levels
| Deposit | Cash contribution | Base loan | Base LVR | Indicative monthly repayment* |
|---|---|---|---|---|
| 5% | $40,000 | $760,000 | 95% | $4,557 |
| 10% | $80,000 | $720,000 | 90% | $4,317 |
| 20% | $160,000 | $640,000 | 80% | $3,837 |
*Illustration only: principal-and-interest repayments over 30 years at 6% p.a., excluding LMI, fees and purchase costs. The rate is an assumption, not a quoted product or forecast.
The move from 5% to 20% reduces the base loan by $120,000 and the illustrative repayment by about $720 per month. But it also requires an additional $120,000 upfront. The decision depends on how long that extra saving would take, what happens to your target market during that period and whether the smaller-deposit loan is sustainable.
Buying with a 5% deposit
A 5% deposit can shorten the saving period substantially. It may be available through a standard high-LVR loan with LMI, or through the Australian Government 5% Deposit Scheme for eligible buyers using a participating lender.
Under the current Government scheme, eligible first home buyers can purchase with a minimum 5% deposit without LMI. There are no applicant income caps, no waitlist and unlimited places, but property price caps, occupancy rules and lender approval still apply.
Potential advantages
- You may enter the market sooner.
- You need less cash for the percentage deposit.
- Eligible buyers using the Government scheme can avoid LMI.
- You can begin paying down your own home rather than continuing to save while renting.
Trade-offs
- The loan and repayments are higher than with a larger deposit.
- A standard loan may attract a substantial LMI premium.
- Lender and product choice can be narrower at a high LVR.
- You begin with limited equity and greater exposure to a fall in value.
- There is less room to add LMI or fees before reaching a lender’s maximum acceptable LVR.
A minimum 5% does not mean every saved dollar should go into the contribution. Keep purchase costs and a post-settlement buffer separate.
Buying with a 10% deposit
A 10% deposit can be a middle path: a smaller loan and more equity than a 5% purchase, without waiting to reach 20%.
LMI can still apply around a 90% LVR unless an eligible scheme, guarantee or lender waiver is available. The premium is not necessarily half the amount charged at 95% LVR; pricing is lender- and insurer-specific and can change sharply across LVR bands.
Potential advantages
- Lower loan and repayment than the 5% option.
- More equity and a larger buffer against valuation movements.
- Potentially lower LMI than at 95% LVR.
- More lender options may be available than at a very high LVR.
Trade-offs
- LMI may still apply.
- The buyer must save twice the cash contribution required at 5%.
- Some pricing or product benefits remain unavailable until 80% LVR or below.
Ten per cent can be useful when the additional saving time is manageable and produces a meaningful improvement in loan cost or choice. Model the actual lender outcomes rather than assuming it is automatically the ideal compromise.
Buying with a 20% deposit
A 20% contribution generally produces an 80% LVR before fees. This commonly avoids LMI and can improve lender and product choice.
Potential advantages
- Lower loan and repayments.
- LMI is commonly avoided.
- Broader access to lender products and sharper pricing may be possible.
- You start with more equity and greater protection against a valuation decline.
Trade-offs
- It can take much longer to save.
- Waiting may involve continued rent and changes in property prices or interest rates.
- Using all available savings to reach exactly 20% can leave no cash buffer.
A buyer with 18% plus a healthy emergency fund may be in a stronger practical position than a buyer who contributes 20% and has nothing left. Ask for comparisons rather than treating 20% as a finish line at any cost.
The deposit affects five parts of the loan
1. Loan size and repayments
Every additional dollar contributed reduces the base loan by a dollar. That lowers repayments and the interest charged, assuming the rate and term are unchanged.
2. Lenders mortgage insurance
LMI commonly becomes relevant above 80% LVR, although policies differ. The premium can vary with loan size, LVR, property and lender. It protects the lender, even where the cost is passed to you.
3. Lender and product choice
Not every lender accepts every high-LVR application or property type. Apartments of unusual size, regional property, construction loans and other security types can have lower maximum LVRs. A larger deposit may widen the available options.
4. Interest rate and fees
Some lenders price loans by LVR tier. A lower LVR may qualify for a different rate or fee position, but this is not universal. Compare the complete loan rather than assuming the largest bank or smallest deposit has the best deal.
5. Equity and flexibility
More starting equity can make it easier to absorb a lower valuation, refinance later or sell without a shortfall. With a small deposit, transaction costs and a modest price decline can leave little usable equity in the early years.
The cash deposit and the contract deposit are different
The deposit discussed in home lending is your total contribution to the purchase. The contract deposit is the amount paid to the agent or seller when contracts are exchanged, often 10% but sometimes negotiated.
A buyer using a 5% lending pathway may still see a contract that requests 10%. Your conveyancer can discuss whether a lower contract deposit, deposit bond or another arrangement is appropriate and acceptable to the seller. Do not assume loan approval automatically changes the contract terms.
What counts as an acceptable deposit?
Lenders may ask where the funds came from and whether part of the contribution represents genuine savings held or accumulated over time. Policies differ for:
- regular savings
- a cash gift from family
- First Home Super Saver amounts
- government grants
- sale of an asset
- borrowed funds or an unsecured personal loan.
A gift may need a declaration confirming that it is not repayable. Borrowed deposit funds create another liability and can reduce serviceability. Confirm the evidence required before relying on a source that a lender may treat differently.
When a lower valuation changes your percentage
Suppose you agree to pay $800,000 and plan an $80,000 contribution. If the lender accepts a value of $760,000, a $720,000 loan represents about 94.7% of that value—not 90%.
The lender may reduce the loan, require more cash, apply different LMI or decline the security. Your contract conditions and available funds determine what options remain. This is one reason a cash buffer matters even when your deposit percentage appears settled.
Should you buy now or keep saving?
Compare two realistic paths over the same time period.
Buying sooner
- deposit and costs available now
- loan, LMI and rate at the current LVR
- repayments tested at higher rates
- cash remaining after settlement
- expected time in the property.
Waiting for a larger deposit
- time needed to save the difference
- rent and other housing costs during that time
- possible movement in property prices and interest rates
- benefit of a smaller loan, lower LMI or better pricing
- whether your income or life plans may change.
No one can guarantee future prices or rates. The purpose is to understand what must happen for waiting—or buying—to deliver the better personal outcome.
Questions first home buyers ask
Is 5% of the purchase price enough?
Not by itself. You also need to satisfy lender or scheme requirements and cover costs such as conveyancing, inspections and any applicable transfer duty. A valuation below the price can increase the contribution required.
Does a 10% deposit avoid LMI?
Usually not under a standard loan, although a government guarantee, family guarantee or lender-specific waiver may change the outcome.
Is 20% always the cheapest option?
It usually lowers the loan and commonly avoids LMI. Whether waiting to reach it produces the lowest overall cost depends on rent, saving time, rates, property prices and your circumstances.
Can purchase costs form part of the 20%?
No. The contribution percentage relates to the property value. Purchase costs generally need to be allowed for separately, although some loan-related costs may be capitalised if the lender permits.
Will a larger deposit increase borrowing capacity?
It reduces the loan you need and may improve lender options, but it does not necessarily increase the maximum debt your income can service. Read Falcon’s guide to what determines borrowing capacity.
Choose the deposit that supports the whole plan
Your deposit should be considered alongside purchase costs, repayments, lender policy and the cash you want to retain. Falcon’s home loan calculators can help compare the repayment effect of different loan amounts.
For the complete upfront picture, see how much money you may need to buy your first home and Falcon’s first home buyer guidance.
Speak with Prasanth at Falcon Lending Solutions to compare 5%, 10% and 20% scenarios across relevant lenders, including the funds required, likely LMI, repayments and cash remaining after settlement.
General information only. This article does not take into account your objectives, financial situation or needs. Credit approval, valuation, eligibility, lending criteria, fees and conditions apply. Rates, government schemes and lender policies can change.