5%, 10% or 20% Deposit: What It Really Costs to Buy in Australia

People love saying, "you need a 20% deposit to buy a house" like it is a law carved into stone by the Reserve Bank. It is not. It is more like the internet's favourite shortcut.

In Australia, you can buy with 5% or 10% in plenty of cases. The catch is that a smaller deposit usually means a bigger loan, higher repayments, and potentially lender's mortgage insurance, or LMI. That is where the cheap-looking option can get a bit spicy.

The good news is this does not need to stay fuzzy. Once you break the numbers into deposit, buying costs, LMI, and repayments, the trade-offs get much clearer.

If you want to run your own version, start with the LMI Calculator, test your borrowing power in the Borrowing Capacity Calculator, and check upfront government charges with the Stamp Duty Calculator.

The short version

• 5% deposit: fastest path in, but usually the most expensive financing setup unless you qualify for an exemption or guarantee.
• 10% deposit: a middle ground that can reduce LMI and give you more breathing room.
• 20% deposit: usually the cleanest option because it often avoids LMI and lowers repayments, but it can take a lot longer to reach.

So no, the answer is not always "wait until 20%". Sometimes waiting is smart. Sometimes waiting just means paying rent for two more years while prices jog off without you. Rude, but it happens.

What counts as the deposit, and what does not

Your deposit is the chunk of the purchase price you are paying upfront. On a $700,000 property, the numbers look like this:

• 5% = $35,000
• 10% = $70,000
• 20% = $140,000

That is only part of the upfront cash you may need. Many buyers also need money for:

• stamp duty, unless an exemption or concession applies
• conveyancing or solicitor fees
• building and pest inspections
• loan application or settlement costs
• moving costs and a small emergency buffer

This is where buyers trip over their own spreadsheet. They save the deposit, then realise the rest of the buying costs have been standing behind them with a folding chair.

A worked example: buying a $700,000 home

Let us use a simple owner occupier example with no fancy grant assumptions, because state concessions vary and they change. We will just compare the structure of each option.

The key threshold is usually 80% loan-to-value ratio, or LVR. Once you borrow above that, LMI commonly enters the chat.

What LMI does to the maths

LMI protects the lender, not you. Annoying, yes. Also normal.

At a high level:

• a 5% deposit often means the highest LMI premium
• a 10% deposit can still involve LMI, but often less than a 5% setup
• a 20% deposit often avoids LMI altogether

The exact premium depends on the lender, property value, loan size, and borrower profile. Some lenders let you capitalise LMI into the loan, which reduces upfront cash pressure but increases the debt you are repaying interest on. Very generous of the system.

That is why two buyers looking at the same property can end up with meaningfully different total costs. One has a smaller deposit but better income and lower other debts. Another has more cash saved but weaker borrowing power. Same house, different pain.

When 5% can make sense

A 5% deposit is not automatically reckless. It can make sense if:

• your income comfortably supports the repayments
• you have enough left over for stamp duty and other costs
• you qualify for a guarantee or family support arrangement that changes the LMI equation
• waiting for 10% or 20% would take several years
• rents in your area are high enough that buying sooner is worth considering

What you do not want is scraping together 5%, emptying every account you own, and then discovering the first hot water system problem has to go on a credit card. That is not a property strategy. That is just an expensive character-building exercise.

When 10% is the sweet spot

For a lot of buyers, 10% is the practical middle lane.

You still borrow more than someone with 20%, but you may reduce LMI, improve lender options, and keep enough cash aside that the purchase does not leave you financially winded on day one.

A 10% deposit can be a strong option if:

• you are close to buying now and want to avoid dragging the process out for another year or two
• you need a bit more lender flexibility than a 5% deposit usually offers
• you want a buffer left after settlement instead of arriving broke with a nice letterbox

It is not the cheapest setup, but it is often a better balance between speed and cost.

Why people still aim for 20%

The case for 20% is very straightforward:

• you often avoid LMI
• your loan is smaller from day one
• repayments are usually lower
• you may have more lender choice and less risk of being stretched

That said, 20% is not magical. If it takes you four extra years to save, prices rise faster than your deposit, and your rent keeps climbing, the "better" option on paper may not be better in real life.

This is why the best question is not "How do I avoid LMI at all costs?" It is "What gets me into a sustainable loan position with the least damage overall?"

Do not ignore borrowing capacity

A bigger deposit helps, but it does not rescue a borrowing profile on its own. Lenders also care about:

• income and job stability
• existing debts
• credit card limits
• dependants
• living expenses

You can save brilliantly and still get knocked back if your borrowing capacity is too tight. Before getting attached to a suburb, a layout, or a suspiciously perfect but somehow affordable weatherboard, check what a lender may actually let you borrow.

My practical rule of thumb

If you are choosing between 5%, 10%, and 20%, ask these four things:

1. Can I comfortably afford the repayments at current rates, plus some buffer?
2. Do I have cash for buying costs and an emergency buffer after settlement?
3. How much extra will LMI cost me at 5% or 10%?
4. How long would it realistically take me to reach the next deposit tier?

If moving from 5% to 10% only takes six months, that may be worth it. If moving from 10% to 20% takes another three years, maybe not. Context matters more than mortgage folklore.

Bottom line

You do not always need 20% to buy a home in Australia. But the smaller the deposit, the more important the rest of the numbers become.

5% can get you in faster, 10% is often the sensible compromise, and 20% is still the cleanest setup if you can get there without spending half your adult life waiting.

Run the full picture, not just the deposit headline. That means purchase costs, LMI, repayments, and the buffer left over after settlement. Because "we technically got approved" and "this feels comfortable" are not always the same sentence.

FAQs

Can first home buyers buy with less than 20%?

Yes, in many cases. Some lenders accept lower deposits, and some buyers may qualify for government support or family-backed structures that reduce the usual hurdles. The details depend on the lender, state, property price, and your personal circumstances.

Is LMI always paid upfront?

Not always. Some lenders allow it to be added to the loan instead of paid as a separate upfront amount. That can help cash flow at settlement, but it also means paying interest on a larger loan balance.

Should I drain my savings to hit a bigger deposit?

Usually no. Having no emergency buffer after settlement is risky. Owning a home gets very educational the moment something breaks.

What calculators should I use before making an offer?

At minimum, check your likely upfront costs with the Stamp Duty Calculator, estimate LMI using the LMI Calculator, and test serviceability in the Borrowing Capacity Calculator.