First Home Deposit:
Is 20% Really Necessary?

1 Introduction

Is a 20% deposit really the magic number everyone talks about, or is that just one of those money myths that never seems to die? What if the real question is not "Do I need 20%?" but "What is the smartest first home deposit for my situation?" And how different would life look if entering the market with a 5–10% deposit got you closer to long-term wealth sooner?

Many first home buyers — especially from Nepali and Indian communities — feel stuck. Friends, family and social media often repeat that buying a first home is impossible without a big deposit. On top of that, the Australian banking system, new terms like LVR and LMI, and strict paperwork can feel confusing when English is a second language.

This guide breaks it all down in plain language. It explains how different deposit sizes work, what Loan-to-Value Ratio (LVR) really means, how Lenders Mortgage Insurance (LMI) affects you, and how government schemes and smart savings strategies can speed up your journey to home ownership.

Throughout, Everest Home Loans is the guide by your side — with multilingual support in English, Nepali, Hindi and Punjabi, and deep experience helping buyers purchase with 5–10% deposits right across Melbourne, Sydney, Brisbane, Perth and Adelaide.

By the end, the idea of a deposit will feel clear instead of scary. You will know whether 20% is worth waiting for, when 5–10% makes more sense, and how Everest Home Loans can help map out the best path for your own first home or next investment.

2 What Is a Home Deposit and Why Does It Matter?

A home deposit is the money you contribute upfront towards the purchase price of a property. It is your share of the price on day one and forms your first chunk of equity in the home. The rest of the money comes from a lender as a home loan.

The bigger your deposit, the less you need to borrow. A larger first home deposit lowers your loan amount, which usually means:

• Smaller monthly repayments
• Less interest paid over the life of the loan
• A buffer if interest rates rise in the future

For buyers trying to balance family costs, school fees or caring for parents, that difference in repayments can make life a lot more comfortable.

Lenders also use your deposit as a sign of your money habits. Saving even a 5–10% home deposit takes planning and discipline, and banks like to see that pattern over time. A higher deposit usually means lower risk for the lender, which can lead to sharper interest rates and smoother approval.

Getting clear on both the deposit and these costs is the first step to a realistic plan — and this is where Everest Home Loans often begins when helping new clients map out their first home.

3 The 20% Deposit Myth: Is It Really Necessary?

For years, people have repeated that a 20% deposit is the "standard" for buying a home in Australia. In reality, 20% became the key number because it is the point where Lenders Mortgage Insurance usually stops being charged — not because the law demands it. There is no rule that says you cannot buy your first home with less.

There are real benefits to a 20% first home deposit. With 20% down, your LVR is generally 80% or less, which means:

• No LMI in most cases
• Stronger equity from day one
• A lower loan size and often lower repayments

Lenders often give sharper interest rates at these levels because they see you as lower risk. Over twenty or thirty years, that can mean interest savings in the tens of thousands.

However, saving a full 20% can take many years, especially in cities like Melbourne or Sydney where property prices are high. While someone is saving, prices can keep climbing, which means the target deposit also keeps moving further away. For many buyers, waiting for a 20% home deposit means staying out of the market while rents rise and opportunities pass by.

This is why so many Australians — especially first home buyers — now buy with deposits between 5% and 10%. The trade-off is higher LVR, possible LMI and sometimes slightly higher rates, yet they get into the market sooner and start building equity earlier.

"Time in the market often matters more than timing the market." — Common investing principle shared by many property advisers

Everest Home Loans specialises in this space. We regularly help clients buy with 5–10% deposits and LVRs up to 95%, using a mix of lender options, government schemes and LMI reduction strategies. The goal is simple: match the deposit you have or can save with a smart structure rather than chase a number that does not fit your life.

4 Understanding Loan-to-Value Ratio (LVR)

Loan-to-Value Ratio (LVR) is one of the most important numbers in any home loan. It shows how much of the property value you are borrowing compared with how much you are putting in as your own money. Lenders use LVR as a quick way to judge risk.

A lower LVR means you have more equity and the bank has more security. That usually leads to:

• Sharper interest rates
• More loan choices
• Easier approval

The key line in the sand is often 80% LVR, because loans above this level usually attract LMI and can have tighter rules. Higher LVRs such as 85%, 90% or even 95% are common for low-deposit buyers, yet they come with trade-offs. When Everest Home Loans works with clients, we help set a target LVR and first home deposit based on your income, time frame and the kind of property you want, then match that target with lenders who are comfortable at that level.

5 What Is Lenders Mortgage Insurance (LMI)?

Lenders Mortgage Insurance (LMI) is a one-off insurance premium that protects the lender — not the borrower — if the borrower cannot repay the loan and the sale of the property does not cover the outstanding balance. It does not protect the borrower or any guarantor, even though the borrower pays for it. This can surprise many first home buyers.

LMI generally applies when your LVR is above 80%, which means your first home deposit is less than 20% of the property value. The higher the LVR and loan amount, the higher the LMI premium.

There are two common ways LMI is paid:

• Upfront at settlement — keeps the loan balance slightly lower from day one
• Added to the loan amount — spreads the cost over time but means paying interest on the LMI for the full loan term

Ways to Reduce or Avoid LMI

• Save a full 20% deposit, keeping your LVR at or below 80% in most cases
• Use the First Home Guarantee — eligible buyers with a 5% deposit can avoid LMI entirely because the government provides a guarantee to the lender
• Consider a family guarantor, where part of the loan is secured against a parent's property, bringing the effective LVR below the LMI line

Everest Home Loans spends a lot of time on this single cost. By comparing lenders, using government support where possible and structuring guarantor loans with care, we have helped many clients save between $15,000 and $30,000 in LMI. Getting advice before you sign a contract can make the difference between paying LMI or avoiding it.

6 Buying With a 5–10% Deposit: Your Options

Buying a home with a 5–10% deposit is not only possible — it is now very common, especially for first home buyers in growing suburbs. The key is to understand how this changes your LVR, LMI and lender options, then plan around those details instead of guessing. With the right structure, a smaller first home deposit can still be a smart move.

The First Home Guarantee Scheme

The First Home Guarantee is a federal scheme that lets eligible buyers purchase a property with as little as a 5% first home deposit while avoiding LMI. The Australian Government, through Housing Australia, provides a guarantee for up to 15% of the property value — giving the lender the same comfort as if you had a 20% deposit.

To qualify, you generally need to be:

• An Australian citizen or permanent resident over 18
• Buying your first home in Australia and planning to live in it
• Intending to move into the home and live there for at least 6 of the first 12 months

Places in these schemes are capped each financial year and income limits apply, so demand can be strong. Applications go through participating lenders or mortgage brokers. Everest Home Loans works closely with these lenders and can check your eligibility, run the numbers and manage the paperwork so that the scheme is correctly linked to your loan from the start.

Low Deposit Home Loan Products From Lenders

Even if you do not use a government scheme, many Australian banks and non-bank lenders offer low deposit home loans sitting between 85% and 95% LVR. They almost always include LMI, yet they can still be a smart way into the market when matched with a strong long-term plan.

For these loans, lenders look closely at your profile. They generally want:

• Steady employment — often at least 6–12 months in your current role or a longer track record in the same industry
• A clear credit report with no serious missed payments
• A visible pattern of genuine savings
• Reasonable spending habits with limited high-interest debts

Everest Home Loans has access to more than 30 lenders, including Commonwealth Bank, Westpac, ANZ, NAB, Macquarie and Bankwest. We compare their low-deposit products, look at rate specials and use pre-approval to show you exactly how much you can borrow before you start making offers.

7 Government Schemes and Grants to Boost Your Deposit

Beyond the First Home Guarantee, there are other government programs that can make a first home deposit goal feel much more realistic. When combined, these supports can reduce the cash you need upfront and free up money for moving costs, furniture or an emergency buffer.

Everest Home Loans checks these options for every first home client. Many people have heard of grants or stamp duty discounts but are not sure if they qualify — especially when they are new to Australia. A quick check can reveal thousands of dollars in support that might otherwise be left on the table.

First Home Owner Grant (FHOG)

The First Home Owner Grant (FHOG) is a one-off payment from state and territory governments to help eligible buyers purchase or build a new home. In many parts of Australia, this grant sits somewhere between $10,000 and $15,000, which can be used towards your deposit or other buying costs. It is paid at or near settlement once your application is approved.

Stamp Duty Concessions and Exemptions

Stamp duty is a state or territory tax based on the purchase price of your property and it can add a large amount to your upfront costs — sometimes tens of thousands of dollars on top of the deposit. The good news is that most states offer special concessions or full exemptions for eligible first home buyers.

These discounts depend on where you buy and the value of the property. For example, some states charge no stamp duty at all below a certain price, then offer a sliding discount up to a higher limit. The money you save on stamp duty can then be redirected to your first home deposit, to closing costs or to keeping more savings in your account for safety.

Because the rules differ in each state and change from time to time, it is wise to check current thresholds before making an offer. Everest Home Loans keeps up with these changes and explains them in simple terms, so clients can see the real total cost of buying and not be hit with surprise taxes at settlement.

8 The First Home Super Saver (FHSS) Scheme

The First Home Super Saver (FHSS) scheme lets first home buyers save part of their deposit inside their super fund, taking advantage of the lower tax rate that applies there. For many people, this can grow a first home deposit faster than saving in a regular bank account, especially for those on middle to higher incomes.

The main benefit comes from the tax treatment of voluntary concessional contributions. Money you salary sacrifice into super for FHSS purposes is taxed at 15% inside the fund — usually lower than your normal income tax rate. When you later withdraw the approved amount for your first home, you receive a 30% tax offset, so the overall tax outcome still tends to be better than saving outside super.

How the FHSS Scheme Works

Under FHSS, you can make two types of eligible voluntary contributions into your super:

• Concessional contributions — salary sacrifice or personal payments where you claim a tax deduction (taxed at 15% inside the fund)
• Non-concessional contributions — extra after-tax amounts paid into super without claiming a deduction

Compulsory employer super guarantee payments are not counted towards the scheme.

When you ask the ATO to work out your release amount, they allow you to access all of your counted non-concessional contributions, 85% of your counted concessional contributions, plus a calculated earnings figure. The final amount is taxed with that 30% offset, which usually keeps the effective tax rate lower than saving in a taxable bank account.

Eligibility and Application Process

To use FHSS, you must be at least 18 when you request the release and must be a first home buyer who has never owned property in Australia. You must plan to live in the property for at least 6 of the first 12 months after it is practical to move in. You can only request an FHSS release once in your lifetime, so it is important to plan the timing with care.

1. 1
   Ask the ATO for an FHSS determination through your myGov account before you sign any property contract. This tells you the maximum amount you can withdraw.
2. 2
   Lodge a release request for the amount you want, then wait while the ATO arranges payment from your super fund to your bank account.
3. 3
   You usually have around 12 months from the release request to sign a contract to buy or build a home, then notify the ATO once that contract is signed.

If you do not end up buying within the allowed time, you will need to put the assessable amount back into super or pay a flat FHSS tax of 20% on it. Everest Home Loans often works alongside clients and their tax advisers to check whether FHSS fits their time frame and how it can sit alongside other first home deposit strategies.

9 Smart Savings Strategies to Reach Your Goal Faster

Saving a deposit can feel slow at first, especially when rent, bills and family support all pull on the same pay cheque. The good news is that a clear goal, the right accounts and a simple routine can move things along faster than people expect. The aim is to keep your first home deposit safe, growing and separate from day-to-day spending.

"You must gain control over your money or the lack of it will forever control you." — Dave Ramsey, personal finance educator

High-Interest Savings Accounts

High-interest savings accounts are one of the simplest places to hold a growing home deposit. They usually pay more interest than everyday transaction accounts and some offer bonus interest if you deposit a set amount each month and do not withdraw. This structure can nudge you to keep adding to your first home deposit even when life feels busy.

Money in these accounts is accessible, so you can move it quickly when it is time to pay a holding deposit or settlement costs. Regular deposits into a separate savings account also give lenders clear proof of genuine savings when you later apply for a loan.

Offset Accounts for Existing Homeowners

Offset accounts work well for people who already have a home loan or have family members willing to help. An offset account is a normal bank account linked to a mortgage where the balance reduces the amount the bank uses to calculate interest. The interest you save has the same effect as earning a return at your home loan rate after tax — which often beats standard savings account returns.

For first home buyers using a parent as guarantor, an offset linked to the parent's loan can also help manage risk and keep interest costs down for the family as a whole.

Automate Your Savings and Budget Effectively

A budget that lives only in your head is easy to ignore, so putting structure around it really helps. Set up an automatic transfer from your pay account to your dedicated savings account every time you get paid. Treat that amount as a regular bill to your future self instead of optional saving.

Using a simple spreadsheet or an app to track spending can show where money is slipping away on things that do not add much to your life. Many buyers find that a few small changes — such as cutting unused subscriptions or reducing takeaway — free up hundreds of dollars each month. Everest Home Loans calculators can then show how these extra amounts shorten the time needed to reach your first home deposit target.

10 What Lenders Actually Look for Beyond Your Deposit

A healthy deposit is a strong start, yet lenders will always look at the full picture before saying yes. They want to know that you can handle repayments not only now but also if interest rates rise or your costs change. Understanding this wider check can help you prepare and avoid surprises when you apply.

Savings History and Genuine Savings

Genuine savings is a term lenders use for money you have built up over time — usually over at least 3–6 months. It shows that you can live within your means and regularly put money aside. When a bank sees a clear pattern of deposits into a savings account, it gives them confidence that you can manage regular mortgage repayments.

Large gifts or sudden lump sums can still help with a deposit, yet some lenders want at least part of the funds to come from genuine savings. If your deposit is mostly a gift, Everest Home Loans can guide you towards lenders that are more flexible in this area.

Credit History and Credit Score

Your credit report tells the story of how you have handled money in the past. It shows credit cards, personal loans and any late payments or defaults. Lenders like to see that you pay bills on time, keep credit limits sensible and avoid constant applications for new credit.

Before you apply for a home loan, it is a good idea to check your own credit report — which can usually be done for free once a year. If there are errors or old issues that should have been cleared, these can often be fixed. Everest Home Loans can point you in the right direction and explain how different lenders view certain marks on a report.

Employment Stability and Income

Stable work makes a big difference to a loan application. Most lenders prefer that you have been in your current job for at least 6–12 months or in the same industry for a couple of years. They want to see that your income is steady and likely to continue.

If you are self-employed, banks usually ask for two years of tax returns and financial statements to see your real income across a longer period. Everest Home Loans works with many clients who run small businesses or contract, and we know which lenders are more flexible with non-standard income.

Debt-to-Income Ratio and Serviceability

Serviceability is the way lenders test whether you can afford a loan after all your other commitments are paid. They look at your income, estimate living costs and then add in repayments for any credit cards, personal loans or car loans you already have.

Banks also add a buffer to the interest rate when they do these sums — often around 3 percentage points above the current rate. This stress test checks whether you could still cope if rates increased. Paying down high-interest debts before applying for a home loan can improve your serviceability and increase your borrowing power, which can make your first home deposit go further.

11 How Everest Home Loans Helps You Buy With a 5–10% Deposit

Everest Home Loans focuses strongly on helping buyers who have a 5–10% deposit and are not sure how to turn that into a successful purchase. We understand the worries around LMI, complex bank rules and the fear of making a mistake with such a big decision. Our role is to stand beside you from first question through to keys in hand.

We work with more than 30 Australian lenders, including major banks such as Commonwealth Bank, Westpac, ANZ, NAB, Macquarie and Bankwest. This wide panel means we can compare many low-deposit products at once and find options that suit your income, visa status, credit history and long-term goals.

Our team guides clients through the First Home Guarantee, FHOG applications, stamp duty concessions and the FHSS scheme where suitable. For many first home buyers, this combination of support has reduced their effective first home deposit and saved them between $15,000 and $30,000 in LMI and taxes.

A big part of our work is with multicultural communities. With multilingual support in English, Nepali, Hindi and Punjabi, we explain every step in the language that feels most natural. Families often tell us that this made them feel calm and informed during a process that once seemed too hard. With more than 1,500 clients assisted and strong recognition from major banks, Everest Home Loans is well placed to help you move from saving a deposit to owning your own place.