5%, 10% or 20% Deposit? The Real Cost of Each Including LMI

Most Australians grow up hearing the same thing about buying property: save a 20% deposit, avoid LMI, become a responsible adult, somehow also keep paying rent, and try not to scream into a pillow.

That advice is not completely wrong. It is just incomplete. In 2026, buyers are still getting into the market with 5% and 10% deposits, especially first home buyers using guarantee schemes or buyers who would rather pay some LMI than spend another two years chasing a moving target.

The trick is understanding that the cheapest deposit is not always the cheapest outcome. You need to compare four things together: your deposit, your LMI exposure, your total upfront cash, and whether the resulting repayment still lets you live like a human.

The quick version

• 5% deposit: gets you in sooner, but usually means higher LMI and higher repayments on a standard loan.
• 10% deposit: often the sensible middle ground, because it can cut LMI meaningfully without making you wait forever.
• 20% deposit: usually the cleanest option on a standard loan because many lenders do not charge LMI at 80% LVR or lower.

That does not mean 20% is automatically the best choice. If waiting for 20% means paying rent for another two years while prices keep moving, the maths can change pretty quickly.

First, remember the deposit is not the whole upfront bill

This catches people every time. The deposit is only one chunk of cash. Depending on your state and whether you qualify for concessions, you may also need to cover:

• stamp duty
• conveyancing or solicitor fees
• building and pest inspections
• lender and settlement costs
• moving costs
• a basic emergency buffer for the first expensive surprise, because houses love opening with one

On a $750,000 purchase, the deposit alone would look like this:

• 5%: $37,500
• 10%: $75,000
• 20%: $150,000

But your real cash needed can be much higher once purchase costs are added. This is why buyers who proudly hit the deposit target sometimes discover they are still nowhere near settlement-ready.

What a 5% deposit really means

A 5% deposit usually means borrowing 95% of the property value. On a standard home loan, that is where Lenders Mortgage Insurance often enters the chat.

LMI protects the lender, not the borrower, which remains one of personal finance's more annoying design choices. ASIC's Moneysmart LMI definition notes it is usually a one-off cost and commonly applies when you borrow more than 80% of the property's value.

Why buyers still choose 5%:

• they can buy sooner
• they may avoid another year or two of rent
• they keep more cash as a safety buffer
• they may qualify for a government guarantee that reduces or removes LMI

The trade-offs:

• higher loan balance
• higher repayments
• less equity at the start
• more pain if rates rise or the property needs work straight away

If you are considering this route, check the Australian Government 5% Deposit Scheme, formerly known as the Home Guarantee Scheme. Eligible first home buyers may be able to buy with a 5% deposit without LMI, and eligible single parents or legal guardians may qualify for the Family Home Guarantee with an even lower deposit. You still need to meet lender credit and serviceability checks, so it is not a free-for-all, sadly.

Why 10% is often the sweet spot

A 10% deposit gets less attention than it deserves. It is not as headline-friendly as "buy with 5%" and not as tidy as "save 20%". But for a lot of buyers, 10% is where the numbers stop being silly and start being manageable.

You may still pay LMI above 80% LVR, but the premium is often lower than it would be at 95% LVR. Your loan is smaller, your monthly repayments ease a bit, and you may still buy much sooner than if you wait for 20%.

Ten percent often suits buyers who:

• can buy within months, not years
• want to reduce LMI without draining every account
• still want some cash left after settlement
• have solid income but do not want an ultra-tight budget

If 5% is the aggressive move and 20% is the textbook move, 10% is usually the grown-up compromise.

Why 20% is still the benchmark

A 20% deposit generally brings your loan to 80% loan-to-value ratio or lower. For many standard loans, that is the line where LMI drops away. It can also improve lender choice and reduce the risk of starting home ownership with very thin equity.

The upside is obvious:

• often no LMI on a standard loan
• lower repayments than a 5% or 10% option
• more breathing room if values wobble
• more flexibility with lender pricing and policy

The downside is also obvious: it is a huge amount of cash. On a $750,000 property, a 20% deposit is $150,000 before you even deal with stamp duty, legal costs, or the minor matter of keeping food in the fridge.

Repayments matter just as much as LMI

Buyers get very focused on avoiding LMI, which is fair, because nobody enjoys paying insurance that protects someone else. But monthly affordability matters more than winning a moral victory over a fee.

If a 5% or 10% deposit lets you buy sooner while still leaving your repayments comfortable, that may be better than waiting for 20% and assuming all problems disappear. On the flip side, if buying with 5% would leave you sweating every rate movement, the "got in earlier" story gets old fast.

APRA's minimum serviceability buffer expectation has been 3.0 percentage points since 2021. That is your clue: if the loan already looks tight in your own budget, the bank will probably think so too.

A simple comparison on a $750,000 purchase

Here is the practical version:

• 5% deposit: lowest upfront deposit, highest likely LMI, biggest loan, highest repayment pressure
• 10% deposit: medium upfront deposit, lower LMI than 5%, smaller loan, easier monthly cash flow
• 20% deposit: highest upfront deposit, often no LMI, smallest loan, lowest repayment pressure

The winner depends on what happens to your leftover cash after settlement. That is the bit people forget. A buyer with a 10% deposit and a decent emergency buffer may actually be in a stronger position than a buyer who hit 20% but drained every account to do it.

So which option usually makes sense?

5% can make sense if:

• you qualify for a guarantee or concession
• rent is high enough that waiting is costly
• your income is stable and your buffer remains healthy
• you are comfortable with the higher repayment load

10% can make sense if:

• you want a better balance between speed and cost
• you want to reduce LMI without waiting years
• you care about keeping emergency cash intact
• you want more room in the budget from day one

20% can make sense if:

• you are already close
• reaching it will not take too long
• avoiding LMI meaningfully improves the deal
• you can still settle with a proper cash buffer

Final word

The right deposit is not just about hitting a percentage. It is about the total structure of the purchase. How much cash gets you in, how much debt you are carrying, whether LMI is acceptable, and whether the repayments still leave room for normal life.

If you want the blunt version, 20% is still the cleanest standard answer, 10% is often the smartest compromise, and 5% can absolutely work if the rest of the numbers are strong. Just do not confuse "minimum deposit" with "safe budget". Those are very different things.