First home buyer guide

First Home Deposit: Is 20% Really Necessary?

By Rajesh Kandel, Everest Home Loans 16 September 2026 10 min read

For many Australian buyers the direct answer is no. A 20% deposit is a common lending benchmark, not a legal rule for buying a home. It reduces costs and gives you more choice, but it is not the only realistic path into your first property.

You may be able to buy with 5%, and some eligible single parents or legal guardians may be able to buy with 2%. The harder question is not whether you can buy with less. It is whether buying sooner leaves enough room in your budget for the repayments, a rate rise, and the costs that arrive after settlement.

This guide separates the deposit percentage from the bigger picture: loan to value ratio, lenders mortgage insurance, government guarantees, serviceability, and the cash you need beyond the deposit itself.

The short answer

A 20% deposit is not required to buy a first home in Australia. It is often the point at which you can avoid lenders mortgage insurance and borrow less, but eligible buyers may use a 5% deposit through the Australian Government scheme. The right choice depends on your repayment buffer, your property budget, your upfront costs, and how long the extra deposit would take to save.

Why the 20% Benchmark Exists

It is about risk, not permission to buy

A deposit is the part of the purchase price you contribute yourself, and the mortgage covers the rest. Buy a $700,000 home with a $140,000 deposit and you borrow $560,000. That is an 80% loan to value ratio, usually written as 80% LVR.

At 80% LVR or below, lenders see less risk because you hold more equity from day one. If values fall or you need to sell unexpectedly, there is a larger cushion between the property value and the mortgage balance.

That is how 20% became the familiar benchmark. It is often the point where LMI is not required, assuming the lender is satisfied with the rest of your application. It is not a law saying you cannot own a home without it.

Lenders approve loans above 80% LVR every day. They look at the whole application: income, employment, existing debts, living expenses, credit history, property type and savings pattern. A 5% deposit does not automatically mean approval, and a 20% deposit does not guarantee it.

How LMI changes the numbers

Lenders mortgage insurance is generally paid when the deposit is under 20%. It protects the lender if the borrower cannot repay. It does not protect you from a loss if the home has to be sold for less than the mortgage balance.

LMI is often added to the loan rather than paid upfront. That can make a low deposit purchase possible earlier, but you then borrow the insurance cost as well and pay interest on it over time.

On a $600,000 purchase at 6.00% over 30 years, the 20% buyer starts with a loan $90,000 smaller than the 5% buyer, before LMI is even considered. That difference affects the repayment, the interest charged, and how quickly equity builds. These figures are illustrations only, and actual pricing, LMI, fees and repayments vary by lender and borrower.

A bigger deposit improves flexibility

A 20% deposit makes an application simpler, though not effortless. It widens your lender options, reduces or removes LMI, and may improve pricing compared with a very high LVR loan. It also leaves you with a lower repayment, which can help serviceability.

Still, do not drain every dollar into the deposit purely to reach 20%. A buyer with a 20% deposit and no emergency cash can be more exposed than a buyer with a slightly smaller deposit and a sensible buffer. Ownership costs are uneven. A failed hot water system, a strata special levy, a car repair or a period of reduced income rarely arrives at a convenient moment.

Low Deposit Pathways for First Home Buyers

The Australian Government 5% Deposit Scheme

Under the Australian Government 5% Deposit Scheme, eligible first home buyers can purchase with a minimum 5% deposit, and eligible single parents or legal guardians can purchase with a minimum 2%.

The mechanism is a government backed guarantee. Instead of you paying LMI because the loan exceeds 80% LVR, the guarantee covers part of the lender's risk. That lets an eligible borrower avoid LMI while borrowing with a smaller deposit.

Treasury states that the 2025 expansion of first home buyer support extended the 5% deposit pathway to all first home buyers from 1 October 2025. The low deposit route is no longer a narrow exception for a small group of applicants.

Eligibility is more than a deposit test

Having 5% saved does not by itself make you eligible. The scheme has borrower, property and lender conditions, set out in the scheme eligibility FAQs.

• You need to meet the scheme's first home buyer rules
• The property must be an owner occupied home, not an investment
• The purchase price must fit the applicable property price cap
• You must apply through a participating lender, not simply any lender you prefer
• You must still satisfy that lender's credit and serviceability assessment

The owner occupier condition is easy to underestimate. If you are buying purely to rent the property out, this pathway is not the fit. Likewise, if the home you want sits above the local cap, a guaranteed 5% purchase may not be available even when your income is strong.

An ordinary 5% loan is a different product

The Cash You Need Beyond Your Deposit

Deposit savings are not settlement funds

A frequent mistake is assuming a 5% deposit means you need only 5% of the purchase price in the bank. The deposit is one line in a larger buying budget.

• Stamp duty, unless a concession or exemption applies
• Conveyancing or legal fees
• Building, pest or strata inspections
• Lender application, valuation or settlement fees where charged
• Home and contents insurance
• Moving costs, immediate repairs and furniture

A buyer with $35,000 saved for a $600,000 home technically has a 5% deposit. If their buying costs come to $12,000, only $23,000 is left for the deposit unless some costs can be covered another way. That pushes the effective LVR upward and can change which loans are available.

The deposit percentage is not your full cash target. Calculate the deposit and the transaction costs separately, then keep a buffer after both.

Serviceability is often the real bottleneck

Lenders test whether you can repay the loan under their own assessment rules. That test considers income, ongoing debts, household expenses, dependants, credit limits, and a rate higher than the one you would initially pay.

Picture two buyers purchasing the same $650,000 home. Buyer A has a 20% deposit, plus a car loan, a large credit card limit and high childcare costs. Buyer B has a 10% deposit, stable income, lower fixed commitments and a larger monthly surplus. Buyer A may well have the harder serviceability case.

This is why moving from 10% to 20% is not always the most useful next step. Clearing expensive debt, reducing unused credit limits, or building a clear savings history can improve an application more than adding a little to the deposit.

Using super to build a deposit

The First Home Super Saver Scheme allows eligible people to make voluntary super contributions of up to $15,000 per financial year, and $50,000 in total, that may later be released toward a first home deposit.

It is not a shortcut that removes the need for planning. Release timing, contribution rules, tax treatment and eligibility all matter, and the withdrawal takes time to process. It suits a buyer with time to plan contributions more than someone ready to make an offer this month.

Should You Buy With Less or Wait for 20%

When buying sooner may be sensible

• You qualify for a low deposit pathway that avoids LMI
• Your repayment stays comfortable after allowing for higher rates and normal household costs
• You have separate funds for buying costs and a basic emergency reserve
• The property suits your likely needs for several years, so you are not pressured to sell quickly
• Saving from your current deposit to 20% would take a long time

If you have 5% plus costs saved, stable employment and a manageable repayment after lender assessment, waiting another four years for 20% is not automatically safer. If prices rise faster than your savings rate, the 20% target keeps moving away from you. That is a trade off, though, not a prediction. Nobody knows whether prices, rates or personal circumstances will move in your favour.

When waiting for 20% may be better

• Your projected repayment already feels tight before allowing for rate changes
• You would use every available dollar for the deposit and costs
• Your income is unstable, or you expect a major life change soon
• The property is likely to need significant repairs
• You can reach 20% in a relatively short time without compromising other essential goals

A 20% deposit is particularly valuable when your borrowing capacity is close to its limit. Borrowing less can reduce the assessed repayment enough to make the property you want achievable. In that case the bigger deposit does more than avoid LMI. It changes what you can buy.

A decision framework that avoids false choices

The choice is not always 5% now versus 20% someday. A 10% or 15% deposit is a practical middle ground that reduces the loan without the long wait.

1. Calculate your total available cash, then subtract estimated buying costs and a personal emergency buffer.
2. Work out the deposit percentage left after those deductions.
3. Compare repayments at your likely loan amount, not just at the advertised interest rate.
4. Check whether you may qualify for the 5% scheme, including the property price cap and the owner occupier rule.
5. Ask how long it would realistically take to reach the next milestone: 10%, 15% or 20%.
6. Stress test the budget. Could you still pay the mortgage if rates rose, your hours fell, or a major bill arrived?

The most useful answer usually comes from comparing two complete scenarios. One is buying now with a smaller deposit, including the larger loan and any LMI. The other is waiting, saving more, and estimating what purchase price and borrowing capacity would look like later. Comparing deposit percentages alone misses the point.

Frequently Asked Questions

Conclusion

A 20% deposit remains a strong financial position, but it is not the entry ticket to first home ownership. For some buyers, a 5% deposit with an eligible government guarantee is the practical route to buying sooner without LMI. For others, waiting to reduce the loan and build a stronger cash buffer is worth the delay.

The right target is the one that lets you cover the purchase costs, meet the lender's requirements, and handle the repayments without turning every unexpected bill into a crisis. Before making an offer, compare the full numbers at 5%, 10%, 15% and 20%, not just the headline percentage.

Sources

This article is general information only and is current as at September 2026. It does not take into account your objectives, financial situation or needs. All figures are illustrative examples and do not represent an offer. Scheme settings, property price caps, LMI pricing and state duty concessions change regularly. Confirm the current position with the Australian Government first home buyer scheme materials and the relevant state revenue office before acting. Lending criteria, terms, conditions, fees and charges apply, and approval is subject to assessment.