Many homebuyers are curious about how much a deposit is required to purchase a property. If you’re ready to start looking for your first home, determining how much of a deposit you’ll need is a great starting point.
Bank lending standards have now limited the amount home buyers can borrow with the property’s purchase price. Fortunately, certain banks and financial institutions will still let you borrow a high loan-to-value ratio (LVR) loan, allowing you to enter the market even if you have a small deposit saved.
In this post, we’ll figure out how much money you’ll need to deposit to cover the purchase price, as well as other costs to consider when buying a home and ways to move in sooner.
What Are the Deposit Sizes by Capital City in Australia?
We know that in Australia, a standard house loan deposit is 20% of the property’s worth and that borrowers with lower deposits have options.
We crunched the figures to give you an estimate of how much money you’ll need to buy a home in Australia’s most popular cities. Depending on the deposit amount, here’s how much you’ll need to save in each capital city.
| Capital City | Median Price | 5% Deposit (95% loan) | 10% Deposit (90% loan) | 15% Deposit (85% loan) | 20% Deposit (80% loan) |
| Sydney | $1,106,279 | $55,313 | $110,627 | $165,941 | $221,255 |
| Melbourne | $798,881 | $39,944 | $79,881 | $119,832 | $159,776 |
| Brisbane | $706,594 | $35,329 | $70,659 | $105,989 | $141,318 |
| Adelaide | $584,629 | $29,231 | $58,462 | $87,694 | $116,925 |
| Hobart | $707,087 | $35,354 | $70,708 | $106,063 | $141,417 |
| Darwin | $496,476 | $24,823 | $49,647 | $74,471 | $99,295 |
| Canberra | $906,529 | $45,326 | $90,652 | $135,979 | $181,305 |
| Perth | $531243 | $26,562 | $53,124 | $79,686 | $106,248 |
| LMI Required? | Yes | Yes | Yes | No | |
How to Calculate Your Price Range for a House Deposit
The first step in saving for a deposit on a new home is determining what price range you should be looking at. Knowing your price range enables you to look at suitable homes without worrying whether they are within your budget.
In most circumstances, home loan lenders will lend up to 80% of the property value, requiring you to pay the remaining 20% (your deposit). For a $500,000 house, for example, a cash deposit of $100,000 is needed.
$100,000 is a large sum of money. It isn’t easy to save that much money when you have rent, bills, and groceries to pay for. Some lenders recognize this and can allow you to borrow up to 80% of the property’s worth. Some lenders may lend you up to 95%, which means your deposit will be 5% plus the associated buying costs. This means that if the property you want is $500,000, 5% of that is a $25,000 deposit — a little more manageable.
Of course, a smaller deposit carries a higher risk. If interest rates rise or unanticipated needs arise when you’re borrowing at maximum capacity, you may find yourself in debt. Because there is a higher risk, you will be required to pay Lenders Mortgage Insurance (LMI) if your deposit is less than 20%.
Which One Is Better, Bigger Deposit or Smaller Deposit?
Your initial contribution to the buying price is known as a home deposit. It implies that you possess a share of the property.
Let’s examine the advantages and disadvantages of making a small or large deposit.
Big Deposit
Lenders consider something known as the ‘loan-to-value ratio,’ or LVR. So, if you put down a 20% deposit, your LVR will be 80%. Alternatively, if your deposit is worth 5%, your LVR is 95%.
The more money you deposit, the better. It lowers your LVR, resulting in reduced monthly payments. And the lump sum you put down as a deposit is money you won’t have to pay interest on later.
Pros of a big deposit are listed below:
- You’ll be able to get a house loan with a reduced interest rate.
- You can avoid having to pay Lenders Mortgage Insurance (LMI).
- There are more lenders and house loans available.
Cons of big deposits are listed below:
- Saving for a deposit will take longer, and house prices may have increased during that period.
Small Deposit
Smaller deposits require lenders’ mortgage insurance. If your LVR is greater than 80%, you will almost certainly be required to pay lenders’ mortgage insurance (LMI). It is a one-time payment that protects the lender if you default on your loan.
It’s usually integrated into the amount you borrow, so there’s no upfront cost, but it does mean you’ll pay a slight deposit premium.
Pros of small deposits are listed below:
- You won’t have to save as much money, which means you’ll be able to enter the market sooner.
Cons of small deposits are listed below:
- Interest rates are often higher.
- You may be obliged to pay lenders’ mortgage insurance.
- As an investor, your options for mortgages may be more limited.
Is It Possible to Have a Smaller Deposit and Avoid Paying Lenders Mortgage Insurance?
LMI is a one-time insurance payment that protects your lender from financial loss if you cannot repay the loan. If you are a first-time buyer with a small deposit and a high LVR, you will undoubtedly be required to pay LMI. LMI is computed using the property’s purchase price, location, and loan amount.
While putting down a 20% deposit is usually recommended, saving this amount can take some time. If you’re prepared to pay LMI, you could be able to get a house loan with a lesser deposit, or if you’re a first-time buyer qualifying for the First Home Loan Deposit Scheme (FHLDS) or New Home Guarantee (NHG), you might be able to buy with a 5% deposit.
What Is the Government Support for First Time Buyers?
Buying your first house is likely to be the most significant financial commitment of your life, so it pays to be aware of any resources that can help. However, determining what government assistance is available and applicable to you can be complex and differs by state.
First Home Loan Deposit Scheme (FHLDS) allows qualified first-time homebuyers to buy a home with as little as a 5% deposit (the government guarantees the remaining amount, up to 15 percent ). Property price limitations apply, and the program can be used for new and existing residences.
New Home Guarantee (NHG) is a similar program that allows qualifying first-time purchasers to buy a home with a 5% deposit. The government guarantees the rest up to 15%; however, this program is only available for new homes. Newly completed homes, off-the-plan purchases, house and land packages, and land with a separate contract to build a new home are all examples of this.
The Family Home Guarantee (FHG) program allows eligible single parents to build or purchase a home with as little as a 2% down payment and avoid the cost of LMI by guaranteeing up to 18% of the loan amount.
What are the Examples of Deposit Amounts?
Once you’ve chosen a house that suits your budget, you’ll need to figure out how much of a deposit you can afford. With a greater deposit, you’ll need to borrow less, which means you’ll pay less interest and maybe lower monthly payments.
A deposit of 20% of the house’s total value is usually a fair starting point. If you have a lower deposit, you may be able to obtain a loan, but you will most likely be obliged to pay Lenders Mortgage Insurance (LMI), which will increase the cost of your loan. It’ll take longer to pay off as well.
The table below will give a general idea of how much money you’ll need for your deposit based on a range of fair value of the property.
| Full value of property | Minimum Deposit | |
| 20% | 5% | |
| (no Lenders Mortgage Insurance) | (with Lenders Mortgage Insurance) | |
| $600,000 | $120,000 | $30,000 |
| $500,000 | $100,000 | $25,000 |
| $400,000 | $80,000 | $20,000 |
| $300,000 | $60,000 | $15,000
|
How to Save Up for a House Deposit
If you’re in the planning stages of buying a home, you’ll need to figure out how to save for a deposit in the most economical way possible. Whether you are a first-time homebuyer or not, there are some steps you can take to ensure you meet your deposit goal as soon as possible.
- Pay off your debts: Paying off all of your obligations, especially credit cards and other high-interest loans, will make saving for a deposit much easier.
Once you’ve paid off all of your previous bills, you’ll find it easier to budget your monthly expenses and save for a deposit. Receiving rid of your current debts improves your chances of getting a mortgage.
If you believe you will be unable to pay off all of your previous debts at once, consider consolidating them into a single debt with a lower interest rate. This may reduce your monthly debt payment, allowing you to put more money towards a deposit.
- Set aside money from your salary for savings: The most typical strategy for people to save is to set aside money from their fortnightly or monthly paychecks for a deposit for a house. Even a small amount deducted from each paycheck will make a difference over time. You might also try to save from tax refunds, commissions, or bonuses.
- Reduce some expenses: There are numerous strategies to reduce your daily spending. For example, instead of buying a cup of coffee every morning, prepare your own at home and save the money – it may seem like a small amount at first, but it adds up over time.
- Contact a broker: Before entering the market and looking at potential properties, determine how much you can spend for a deposit and a mortgage. Consider your financial status while making your decision, as this determines the price point you can afford.
It may be better to seek professional help. A mortgage broker may be able to assist you in your home-buying journey because they have access to a variety of financing products.
What Other Upfront Costs Do You Need to Pay For Buying a House?
Purchasing a home entails more than simply the cost of the house itself. There are also other upfront costs you should be aware of, such as:
- Lenders Mortgage Insurance (LMI): LMI is normally required when you borrow more than 80% of the value of your home. This is a form of insurance that safeguards your lender if you cannot repay your loan in the future. LMI is a cost that you can pay in advance or have added to the amount of your home loan, depending on how much you owe.
- Stamp Duty: Stamp Duty is a local and state government tax that varies depending on the property’s location, whether it’s a first home or an investment, and the property’s price. When seeking to buy a home, it’s critical to keep this in mind.
- Legal fees: When purchasing property, certain legal actions must be taken. Conveyancing might include a property and title search, review and exchange of the contract of sale, title transfer, and other aspects.
- Property inspections: Your conveyancer or lender will generally request a property inspection before acquiring a home to ensure it is in good condition and structurally sound. This often includes a building inspection as well as a pest inspection.
- Mortgage establishment fees: There may be expenses to arrange your mortgage depending on your lender and what loan you have. These could include an application cost and valuation, and settlement fees.