Your Home Loan Deposit & Lenders Mortgage Insurance: What You Need to Know
- Jaeneen Cunningham
- Jun 22
- 5 min read
Updated: Jul 2
When you're preparing to buy a home in Australia, one of the biggest challenges is coming up with a sufficient deposit. But how much do you actually need? And how does your deposit affect your eligibility for a loan, the cost of the loan, and whether or not you’ll have to pay Lenders Mortgage Insurance (LMI)?
In this in-depth guide, we break down the different deposit requirements for Australian home loans, how they impact your home buying journey, and why understanding LMI is essential before signing on the dotted line.
What Is a Home Loan Deposit?
Your home loan deposit is the initial upfront amount you contribute towards the purchase of a property. The rest of the purchase price is typically financed by your mortgage lender. In simple terms, if you're buying a $700,000 home and you have a $70,000 deposit, you’ll need a $630,000 home loan. That equates to a 10% deposit. You'll need additional funds for government charges and other fees.
Common Deposit Requirements in Australia
Australian lenders generally assess home loan applications based on the Loan-to-Value Ratio (LVR) — the proportion of the loan amount compared to the value of the property.
Here are the most common deposit benchmarks:
🔹 20% Deposit (LVR 80%) — The Gold Standard
A 20% deposit is often seen as the "safe zone" by lenders. At this level:
LMI is usually waived.
You’ll typically access lower interest rates.
Your application is viewed as lower risk.
Example: For a $600,000 home, a 20% deposit equals $120,000.
🔹 10% Deposit (LVR 90%)
A 10% deposit is still accepted by many lenders, but it typically means:
You’ll be required to pay LMI.
You might face higher interest rates.
Some lenders require stronger financial documentation.
Example: For a $600,000 property, a 10% deposit is $60,000.
🔹 5% Deposit (LVR 95%)
Some lenders allow deposits as low as 5%, especially for:
First home buyers.
Applicants with strong employment history and credit scores.
Those applying under government schemes like the First Home Guarantee.
However, with a 5% deposit:
LMI can be substantial, potentially adding tens of thousands to the loan.
Lenders are stricter with income and spending assessments.
Some may require a portion of the deposit to be genuine savings (e.g. held for 3+ months).
Example: On a $500,000 home, a 5% deposit is $25,000.
What is Lenders Mortgage Insurance (LMI)?
Lenders Mortgage Insurance is a type of insurance that protects the lender, NOT you the borrower, in case the you default on your loan. It’s usually required when the deposit is less than 20% of the property value. Despite the name, it does not protect the buyer or help cover mortgage repayments in any way.
How Much Does LMI Cost?
The cost of LMI can vary greatly depending on several factors:
Size of your deposit
Loan amount
Lender
Whether you’re a first home buyer
Employment status (PAYG vs self-employed)
Here’s a rough idea of how LMI may scale:
Home Price | Deposit | Loan Amount | LMI Estimate |
$600,000 | 10% ($60k) | $540,000 | $11,000 – $14,000 |
$800,000 | 5% ($40k) | $760,000 | $22,000 – $30,000 |
👉 Tip: LMI can usually be capitalised into the loan, meaning you don't need to pay it upfront, but it will increase your overall loan size and interest paid over time.
How Deposit Size Affects LMI and Loan Terms
Let’s look at how your deposit amount influences other key elements of your home loan:
Deposit Size | LVR | LMI Payable | Interest Rate | Approval Risk |
20% or more | ≤ 80% | $0 | Lowest | Low |
10% | 90% | Moderate | Medium | Moderate |
5% | 95% | High | Higher | Higher |
Deposit Saving Tips for First Home Buyers
Struggling to reach that 20% deposit? You're not alone. Here are some practical strategies:
1. Take Advantage of Government Grants and Schemes
First Home Guarantee (FHBG): Allows eligible buyers to purchase with as little as 5% deposit without paying LMI.
First Home Super Saver Scheme (FHSSS): Lets you save a deposit through your superannuation, offering tax advantages.
State-based First Home Owner Grants (FHOG): Available in most states and territories for new builds or homes under a certain value.
2. Use a Family Guarantee
A family member can act as a guarantor, securing part of your loan with their own property. This can:
Eliminate the need for LMI.
Allow you to buy sooner with a lower deposit.
Avoid the need to use your own savings for a full 20%.
3. Genuine Savings Matter
Some lenders want to see that you’ve saved part of your deposit yourself — known as genuine savings. This demonstrates financial discipline and can strengthen your application, especially with smaller deposits.
Watch Out for Hidden Costs
Even if you’ve scraped together a 5–10% deposit, make sure you account for other upfront costs, such as:
Stamp duty
Legal and conveyancing fees
Building and pest inspections
Loan application or valuation fees
Moving costs and furnishings
A deposit of 5% might technically get you over the line, but having extra cash reserves is essential.
Can You Avoid Paying LMI?
Yes — here’s how:
Save a 20% Deposit
The most straightforward way to avoid LMI is to save at least 20% of the purchase price.
Use the First Home Guarantee
Eligible applicants can purchase with 5% deposit and no LMI, under the Federal Government’s First Home Guarantee scheme.
Apply with a Guarantor
As mentioned, a family guarantee can help you secure a loan with no LMI, even with little or no deposit.
Why It’s Worth Talking to a Mortgage Broker
If you’re unsure how much deposit you need — or whether you’ll be hit with LMI — it’s worth speaking to a qualified mortgage broker.
Benefits of Using a Mortgage Broker:
They’ll compare multiple lenders to find the most deposit-friendly policies.
They can explain LMI premiums, and whether they can be waived or reduced.
They understand which banks are more flexible on low-deposit loans or genuine savings requirements.
They can advise if government grants or schemes apply to you.
A mortgage broker can also structure your loan in a way that minimises LMI or ensures you're not overextending financially.
Final Thoughts: How Much Should You Aim to Save?
While 20% is ideal, don’t let a smaller deposit hold you back entirely. Thanks to government schemes, family guarantees, and LMI flexibility, many Australians get into the property market with less than 20% deposit — even as low as 5%. That said, the more you save, the less you borrow, the lower your LMI, and the stronger your financial position will be in the long run.
As always, consider sitting down with a qualified mortgage broker to explore your options, compare lenders, and tailor your loan application to your specific circumstances.
Need Help Navigating Deposit Options and LMI?
If you're unsure how your deposit affects your borrowing capacity or whether LMI applies, talk to an experienced mortgage broker. With access to dozens of lenders and a deep understanding of current lending policies, a broker can help you get home loan-ready — faster and smarter.
Want expert guidance?
Contact us today and find out how we can help you save on LMI, maximise your deposit power, and secure your home loan with confidence.
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