First home buyer guide

House Deposit Guide for First Home Buyers in Australia

By Rajesh Kandel, Everest Home Loans 14 September 2026 11 min read

First home buyers reviewing their savings and house deposit budget at a table

Buying a home can make the word deposit feel bigger than it is. The useful answer is that you may not need a 20% deposit to buy your first home, but you do need a clear plan for the deposit plus the costs that arrive before settlement.

This guide explains the real cash target, the Australian Government 5% Deposit Scheme, lenders mortgage insurance, buying costs, and the decisions worth making before you start house hunting. One point is worth making at the start: a 5% deposit can be enough for an eligible buyer, but it is not the same as having enough money to complete the purchase comfortably.

The short answer
Eligible first home buyers may be able to purchase with a 5% deposit under the Australian Government scheme, and eligible single parents or legal guardians may qualify with 2%. Your true savings target is the property price plus buying costs, minus what a lender will actually lend you. A larger deposit still buys you lower repayments, more equity and a stronger buffer.

How Much Deposit Do You Really Need

The short answer: 5%, 10% or 20%

Your minimum deposit depends on the loan pathway, lender policy, your financial position and the property you choose. The benchmarks are simple. The decision behind them is not.

Deposit	What it means	Main advantage	Main trade off
2%	May be available to eligible single parents or legal guardians under the government scheme	Lowest upfront savings hurdle	Higher loan amount and a tighter cash buffer
5%	May be available to eligible first home buyers through the government scheme	Enter the market sooner with no LMI if approved	Larger repayments than with a bigger deposit
10%	A middle ground for buyers who want more equity	Reduces the loan size and may improve flexibility	Takes longer to save
20%	The conventional target that usually avoids LMI outside a guarantee pathway	Lower loan to value ratio and a stronger equity position	May delay buying in a rising market

The Australian Government states that eligible first home buyers can purchase with a minimum 5% deposit through its first home buyer deposit scheme pathway. That is a minimum, not a promise that every lender will approve every 5% application.

A $700,000 home has a 5% deposit of $35,000. That sounds like the whole target, but it usually is not. You also need funds for conveyancing, inspections, loan fees, moving costs, and stamp duty where a concession does not cover the full amount.

Deposit is not the same as total cash needed

The deposit is the part of the purchase price you contribute yourself. Buying costs are separate, and many of them fall due before or at settlement.

A better planning formula

Deposit savings goal = property price + buying costs − amount you can borrow

The government's guidance on saving for a house deposit uses this approach, because the property price alone does not tell you how much cash you need.

Take a buyer aiming at a $650,000 property. If their lender will lend $617,500, the gap is $32,500, which is 5% of the price. If buying costs come to another $15,000, their practical target is closer to $47,500. Save only the $32,500 and there is little room to pay the rest without reaching for credit or delaying the purchase.

Why a lender may ask for more than 5%

Meeting the scheme's minimum does not override a lender's own standards. The lender still assesses the property, your income, employment, debts, expenses, credit history and the amount being borrowed.

The valuation comes in below the agreed purchase price
Your borrowing capacity does not support the loan amount requested
Your income is variable, recently changed, or relies on overtime, bonuses or self employment
Credit card limits, personal loans or car finance reduce your affordability
The lender treats the property type or location as carrying extra risk

A valuation shortfall changes the plan quickly

If you agree to pay $700,000 and the lender values the home at $680,000, it may base the maximum loan on the lower figure. You would need to contribute more cash, renegotiate the price, or move on to another property. This is one of the most common reasons a 5% plan becomes a 7% plan overnight.

How the Government Deposit Scheme Works

It is a guarantee, not a cash grant

The Australian Government 5% Deposit Scheme is often mistaken for a payment. It is not. You still save and contribute your own deposit.

The government provides a guarantee to the participating lender for part of the loan. For eligible first home buyers, that guarantee can cover up to 15% of the property value. The practical result is that an approved buyer may borrow with a 5% deposit without paying lenders mortgage insurance.

What LMI actually is

Lenders mortgage insurance protects the lender, not you, when the loan is large relative to the property value. It can be a substantial upfront cost or added to the loan balance and paid off with interest for years. Avoiding it makes the low deposit pathway more achievable, but it does not reduce your repayments or remove the lender's affordability checks.

What changed from October 2025

Older articles are confusing because the rules changed on 1 October 2025. Under the expanded scheme, eligible buyers face no income caps, no waitlists and no LMI. The government's expanded scheme guidance sets out the current settings, and Treasury's home ownership support overview is useful if you keep finding older references to limits that no longer apply.

That does not make every property, lender or borrower eligible. The scheme runs through participating lenders and lender approval remains essential. Treat it as removing one barrier, not the whole assessment.

Property price caps still apply

The cap depends on where you buy. As at September 2026 the capital city and major centre caps are $1.5m in New South Wales, $1m in Queensland and the ACT, $950,000 in Victoria, $900,000 in South Australia, $850,000 in Western Australia, $750,000 in the Northern Territory and $700,000 in Tasmania, with lower caps in the rest of each state. Check the current cap for your location before you set a price range.

Who may qualify

Eligibility is more specific than calling yourself a first home buyer. A key test is whether you have owned a home or vacant land in Australia in the past 10 years. The government FAQ explains the 10 year ownership condition and the application requirements in detail.

Eligible single parents and legal guardians may buy with a deposit as low as 2%. That pathway can suit households with stable income but less capacity to build a large deposit.

Your lender still assesses whether you can service the loan. A lower deposit does not reduce your repayments. It usually means you borrow more, so the repayment pressure is greater.

The timing rule that catches buyers out

After pre approval under the scheme, buyers may have 90 days to find a property and sign a contract of sale. That is long enough to search with purpose, and short enough to disappear in a competitive market.

Identification and proof of residency details
Recent income evidence, such as payslips, tax returns or business financials
Statements for savings, debts and regular expenses
A completed Home Buyer Declaration as part of the lender's process
A property search plan that matches your likely borrowing range

Do not treat pre approval as permission to make an unconditional offer without checking the contract, the property condition and the final finance terms. Pre approval is an early lending decision. Final approval depends on the specific property and updated checks.

Build a Deposit Plan That Covers the Full Purchase

Start with borrowing capacity, not a dream price

The strongest deposit plan starts from what you can safely borrow, rather than choosing a price first and hoping the numbers work later. Your income and commitments shape the maximum loan. Your savings then fill the gap between that loan and the total cost of buying.

This prevents a common problem: saving 5% for a price that later proves out of reach. You might save $40,000 expecting to buy at $800,000. If your approved loan supports a purchase closer to $700,000, you can buy in that range with a stronger deposit, keep saving, or reassess the budget. What you should not do is stretch the finances to reach the original number.

Budget for buying costs and a cash buffer

Buying costs vary by state, property value and eligibility for concessions, so check the current local rules before committing to a budget.

Stamp duty, unless a full or partial concession applies
Conveyancing or legal fees
Building and pest inspections where appropriate
Lender application, valuation or settlement fees where charged
Home and contents insurance, removal costs and immediate repairs

A modest post settlement buffer matters too. A buyer who spends every saved dollar at settlement is exposed when the hot water system fails, the car needs repairs, or work hours drop. The amount is personal, but the principle is not: keep some funds that are not already promised to the purchase.

Account for local property prices

A 5% deposit is a percentage, but you save in dollars. That distinction matters most in expensive suburbs. A 5% deposit on a $500,000 home is $25,000. On a $1 million home it is $50,000 before buying costs.

Deposit breakdown for a $600,000 property showing a 5% deposit of $30,000, a 20% deposit of $120,000, a $480,000 loan and $24,000 of buying costs — On a $600,000 property, the 5% deposit is $30,000 and the 20% deposit is $120,000. The $480,000 loan shown is the amount borrowed with a 20% deposit, and the $24,000 of buying costs sits on top of whichever deposit you choose.

This is why a scheme can be genuinely useful and still not solve affordability in every suburb. If the homes you want sit outside your budget, the options are widening the search area, considering a different property type, buying with a suitable co borrower, or saving longer. Each has trade offs, so compare total repayments and living costs, not just the deposit figure.

Choosing Between a 5% and a 20% Deposit

When a 5% deposit can make sense

Buying with 5% can suit you when your income is stable, the repayments remain comfortable after realistic expenses, and you have enough cash left for buying costs and emergencies. It can also make sense when saving 20% would take many years and your preferred market is moving beyond reach.

The central benefit is earlier ownership with no LMI for eligible scheme participants. Earlier entry should not become a reason to accept a repayment that leaves no room for food, transport, insurance, childcare or a rate change.

A useful stress test

Could you still manage if your monthly costs rose or your household income fell for a few months? If the answer is no, then waiting, lowering the target price, or increasing the deposit is the safer path.

When saving more is the better choice

A 20% deposit is not required under the government scheme, but it still has practical value. More equity reduces the loan, lowers repayments and makes refinancing easier later if values change.

You can reach a larger deposit within a reasonable period without taking on expensive debt
The 5% option would leave you with no emergency savings
The projected repayments would consume too much of your household income
You expect to refinance, renovate, start a family or reduce work hours soon
You are buying where a small price decline would leave very little equity

There is no universal winner. A buyer who can purchase now with 5%, keep a cash buffer and make comfortable repayments may reasonably use the scheme. Another buyer benefits more from saving toward 10% or 20% because it produces a less fragile budget.

A simple decision framework

Question	A 5% pathway may suit you if	Saving more may suit you if
Repayments	You can manage them with room for normal living costs	The payment would leave little monthly surplus
Cash buffer	You retain funds after the deposit and buying costs	Settlement would use nearly all your savings
Time to save	Reaching 20% would take years	You can build a bigger deposit relatively soon
Property choice	You can buy a suitable home within your approval range	Your target home needs a loan beyond your comfort zone
Future flexibility	You accept slower equity growth at first	You want a stronger position for refinancing or life changes

Key Takeaways and FAQs

Key takeaways

A 5% deposit may be enough for eligible first home buyers through the government scheme, but buying costs sit on top of it.
Eligible single parents and legal guardians may qualify with a 2% deposit.
Your true savings target is the property price plus buying costs, minus your approved borrowing amount.
Since October 2025 the expanded scheme has removed income caps, waitlists and LMI for eligible buyers, but lender and property requirements still apply.
A larger deposit reduces repayment pressure and gives you a stronger equity and emergency buffer.

How much deposit do I need to buy my first home in Australia?

As little as 5% if you qualify for the government scheme, or 2% if you are an eligible single parent or legal guardian. Outside those pathways, lender requirements vary and 20% is the usual benchmark for avoiding LMI. In every case, allow extra funds for buying costs and a post settlement buffer.

Can I buy with a 5% deposit as a first home buyer?

Yes, eligible first home buyers can use the 5% Deposit Scheme through a participating lender. You must still pass the lender's serviceability and credit checks, and the property must meet the scheme and lender requirements, including the price cap for your location.

Does the government scheme remove LMI?

For eligible buyers under the expanded scheme it can remove the need to pay LMI, because the government guarantee supports the lender for part of the loan. It is not cash paid into your account or applied to your deposit.

Can a single parent buy with a 2% deposit?

Potentially, yes. Eligible single parents and legal guardians can access a 2% deposit pathway. The lender still reviews income, expenses, liabilities, credit history and the property being purchased.

Do I qualify if I owned property before?

You may still qualify if you have not owned a home or land in Australia within the previous 10 years and you meet the other requirements. It is worth checking the precise ownership rule rather than assuming past ownership rules you out.

How long do I have to find a home after pre approval?

Approved buyers may have 90 days to find a property and sign a contract of sale. Use the time deliberately: inspect properties, have contracts reviewed, confirm your likely costs, and avoid rushed decisions as the deadline approaches.

What happens if the property price is higher than expected?

A higher price increases both your deposit in dollar terms and the loan required. If it pushes you past your borrowing capacity, you may need a larger deposit, a lower priced property, a renegotiated price, or a different lending strategy.

Conclusion

A low deposit can help you buy earlier, but the best first home plan is not built around a single percentage. It is built around a realistic property budget, lender approval, buying costs, and a repayment level that still lets you live your life.

Before making offers, calculate your full cash target, confirm whether the government scheme fits your circumstances, and compare the monthly cost of buying now against saving longer. A clear plan turns the deposit from an intimidating obstacle into a number you can work toward.

Work out your real cash target

We will tell you what you can borrow, what the purchase will cost in your state, and whether the 5% or 2% pathway fits your situation. A first conversation costs nothing and commits you to nothing. We speak English, Nepali and Hindi.

Book a free consultation Call 0431 790 889

RK

Rajesh Kandel

Director and Senior Mortgage Broker at Everest Home Loans. A mortgage broker since 2015, Rajesh works with first home buyers across Australia, comparing more than 50 lenders, with multilingual support in English, Nepali and Hindi.

Sources

Australian Government 5% Deposit Scheme, first home buyers: firsthomebuyers.gov.au
Australian Government 5% Deposit Scheme: firsthomebuyers.gov.au
First Home Buyers, frequently asked questions: firsthomebuyers.gov.au
Treasury, supporting people into home ownership: treasury.gov.au
Moneysmart, save for a house deposit: moneysmart.gov.au

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. Scheme settings, property price caps, grant amounts 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.