Buying a home starts with one of the most important financial steps you’ll take: saving for a deposit. The size of your deposit plays a significant role in determining your borrowing capacity and the terms of your home loan. Understanding how much you really need, and why, can help you approach the process with more confidence and clarity.

Most lenders in Australia expect a deposit of at least 20% of the property’s purchase price. For example, on a $600,000 home, that’s $120,000. A 20% deposit helps you avoid additional costs and often puts you in a stronger position when negotiating your loan terms. However, this amount can be challenging for many first-home buyers.

It is possible to purchase a property with a smaller deposit—sometimes as low as 5% or 10%. This can be achieved through government support schemes or by agreeing to pay Lenders Mortgage Insurance, known as LMI. While this reduces the upfront savings required, it does add to the overall cost of your loan.

Lenders will also look for what’s known as genuine savings. This refers to money you’ve saved gradually over time, typically held in a bank account for at least three months. Gifts, windfalls, or borrowed funds don’t usually count. Genuine savings demonstrate to lenders that you have the discipline to manage your finances and meet regular repayments.

When your deposit is below 20%, Lenders Mortgage Insurance usually applies. LMI is a one-off premium that protects the lender, not the borrower, if you’re unable to repay the loan. The cost of LMI depends on your deposit size and the value of the property. It can range from a few thousand dollars to tens of thousands, and may be paid upfront or added to your loan.

It’s also important to budget for additional upfront costs that aren’t part of your deposit. These may include stamp duty, legal fees, building inspections, and other settlement expenses. While these don’t count towards your deposit, they are essential to cover before your purchase can proceed.

Before applying for a loan, assess your current savings, understand what portion is considered genuine savings, and factor in potential LMI and other upfront costs. Setting a realistic deposit goal, and knowing what lenders expect, is the first step toward making your home ownership plans a reality.