Why the Deposit Question Is Not Always Straightforward
One of the most common questions from buyers is: how much deposit do I actually need to buy a house in Australia? The answer is not always as straightforward as “you need 20%.”
While a 20% deposit is often seen as the ideal target, it is not the only way into the property market. Depending on your financial position, the type of loan you are applying for, and whether you qualify for any government support, it may be possible to buy with as little as 5% down. In some cases, eligible buyers may even be able to purchase with a 2% deposit through specific government-backed programs.
Understanding how deposits work is important because the size of your deposit affects more than just how much cash you need upfront. It can influence your borrowing power, whether you have to pay Lenders Mortgage Insurance (LMI), your loan structure, and how competitive your home loan options may be
Is a 20% Deposit Still the Ideal Benchmark?
A 20% deposit is still considered the benchmark in Australia. If you are buying a property worth $700,000, a 20% deposit would be $140,000.
The main reason this figure matters is that once you borrow more than 80% of the property value, many lenders will require LMI. By contributing 20%, you are generally seen as a lower-risk borrower, which can help you avoid that extra cost and may also improve the loan options available to you.
Can You Buy a House with Just a 5% Deposit?
For many buyers, though, saving a full 20% deposit can take years. With property prices remaining high, waiting until you hit that target may mean staying out of the market longer than you would like. That is why a lot of buyers now enter with a 5% deposit instead.
A 5% deposit means you are borrowing 95% of the purchase price. On a $700,000 property, that works out to $35,000.
This is a much more achievable figure for many first home buyers, but ordinarily, a smaller deposit would mean paying LMI and having a higher loan-to-value ratio. The upside is that it may allow you to purchase sooner, especially if you have strong income, genuine savings, and manageable living expenses.
What Happens If Your Deposit Is Less Than 20%?
When your deposit is less than 20%, most lenders will require Lenders Mortgage Insurance (LMI). This is a one-off cost that protects the lender, not the borrower, in case of default.
Although it adds to your upfront costs or loan amount, LMI can be the trade-off that allows you to enter the market earlier rather than waiting years to save a larger deposit.
How the government schemes can make a real difference.
Under the Australian Government’s 5% Deposit Scheme, eligible first home buyers can purchase with a minimum 5% deposit, while eligible single parents or legal guardians may be able to buy with a minimum 2% deposit. The scheme is designed to help buyers get into the market sooner without needing a full 20% deposit.
From 1st October 2025, the scheme was expanded. It now has no income caps, no waitlists and is offered through participating lenders rather than directly through Housing Australia.
This means eligible buyers can access the market sooner without needing to meet the traditional 20% deposit requirement.
Can Eligible Buyers Purchase with a 2% Deposit?
Yes, in certain cases.
Eligible single parents or legal guardians may be able to purchase a home with as little as a 2% deposit under government-backed initiatives.
While the deposit requirement is lower, buyers still need to meet lender criteria, including credit assessment, income verification, and servicing requirements. Property price caps also apply depending on the location.
What Is the Help to Buy Scheme?
The Help to Buy Scheme is a different form of support and works as a shared equity model.
It is now open for applications and allows eligible buyers to purchase with a minimum 2% deposit. Under this scheme, the Australian Government can contribute up to 30% of the purchase price for an existing home, or up to 40% for a newly built home.
This reduces the loan size required from the lender, making repayments more manageable. However, because the government contributes to the purchase, it also holds a share in the property. This means it will share in any future gain or loss when the property is sold or when the equity is bought out.
How the First Home Super Saver Scheme Can Help
For buyers still building their deposit, the First Home Super Saver Scheme is another option worth considering.
This scheme allows eligible first home buyers to make voluntary contributions into their super fund, up to a total cap of $50,000. These contributions, along with associated earnings, can later be withdrawn to help fund a home deposit.
While it is not a loan or guarantee scheme, it can be an effective way to grow your deposit faster in a tax-effective environment.
What Other Upfront Costs Should Buyers Budget For?
It is important to remember that your deposit is only one part of the upfront cost.
Buyers also need to factor in:
- Stamp duty (where applicable)
- Conveyancing and legal fees
- Building and pest inspections
- Loan establishment fees
- Moving and settlement costs
Even when a lower deposit option is available, having a financial buffer can make the entire process smoother and less stressful.
So, How Much Deposit Do You Really Need?
The right deposit ultimately depends on your individual circumstances.
It will come down to your income, borrowing capacity, savings history, eligibility for government schemes, and the type of property you want to buy.
For some buyers, reaching a 20% deposit makes sense. For others, entering the market with 5% or even 2% may be the more practical and strategic choice.
The key is understanding your options and choosing an approach that not only helps you buy sooner but also supports your long-term financial goals.