Myth: You Need a 20% Deposit to Buy a Home
When it comes to buying a home, one of the most common misconceptions is that you must save up a 20% deposit. While having 20% does offer advantages, it’s certainly not a strict requirement—and believing this myth can hold buyers back from entering the market earlier.
Let’s bust this myth and explore your real options.
Why Does the 20% Myth Exist?
The 20% deposit “rule” comes from how lenders manage risk.
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Lenders prefer a 20% deposit because it reduces their risk.
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With less than 20%, loans are higher risk, so lenders often require Lenders Mortgage Insurance (LMI), a one-off premium that protects the lender (not you) if repayments can’t be met.
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While LMI adds to upfront costs, it allows buyers to enter the market with as little as 5% deposit.
For many first-home buyers, buying sooner and starting to build equity outweighs the LMI cost.
Example: Buying a $600,000 Property
| Deposit % | Deposit Amount | Loan Amount | LMI (approx.) | Property Value in 5 Years* | Outcome |
|---|---|---|---|---|---|
| 20% | $120,000 | $480,000 | $0 | $765,000 | No LMI, large deposit upfront |
| 10% | $60,000 | $540,000 | ~$12,000 | $765,000 | Smaller deposit, pay LMI, start building equity sooner |
| 5% | $30,000 | $570,000 | ~$25,000 | $765,000 | Smallest deposit, higher LMI, but in the market earlier |
| Wait 5 Years to Save 20% | $153,000 | $612,000 | $0 | — | Bigger deposit, higher loan, miss 5 years of equity growth |
*Assumes 5% annual property growth.
✅ Key takeaway: Even with LMI, entering the market earlier can often be financially smarter than waiting years to save a full 20% deposit.
Accessible Pathways to Homeownership
1. Low Deposit Home Loans
Many lenders accept deposits as low as 5%, provided you meet their income and credit criteria. These loans usually include LMI, but can still help you get into the market faster.
2. Government-Backed Schemes
The Federal Government offers initiatives to reduce barriers for eligible buyers:
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First Home Guarantee (FHBG): Allows eligible first-time buyers to purchase a home with as little as a 5% deposit without paying Lenders Mortgage Insurance (LMI).
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Family Home Guarantee (FHG): Supports single parents or legal guardians with dependent children to buy a home with a minimum 2% deposit, also without LMI.
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Regional First Home Buyer Guarantee (RFHBG): Assists eligible buyers in regional areas to purchase a home with a 5% deposit and no LMI.
These schemes have eligibility criteria (such as income limits and property price caps) and limited spots each financial year.
3. Guarantor Loans
If you have a close family member who owns property and is willing to help, a guarantor loan might be an option. This type of loan uses a portion of the family member’s property equity as security for your loan. This can allow you to borrow up to 100% of the property’s value, which means no deposit and no LMI.
The Benefits of Saving 20% (If You Can)
While not essential, saving the full 20% deposit does come with perks:
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No LMI (saves thousands).
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Lower loan repayments.
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More choice and bargaining power with lenders.
But here’s the trade-off: property prices may rise faster than your savings. Sometimes waiting for the perfect deposit means missing the market altogether.
The Bottom Line
The 20% deposit rule is a myth that often stops buyers from taking the first step. In reality, there are flexible loan options and government initiatives designed to help people enter the property market sooner.
If you’re dreaming of buying your first home, don’t let the 20% deposit myth hold you back. Speak with a qualified mortgage broker to understand what options are available for your situation. They can explain your options, compare lenders, and help you determine what’s achievable based on your circumstances.
