How Much Deposit Do You Really Need to Buy a Home?

Your deposit is the slice of the purchase price you pay yourself, with the lender covering the rest. The size of it drives two things: whether you pay Lenders Mortgage Insurance, and how much you need to borrow. Most people fixate on the 20 percent figure because at that level no insurance applies. But 20 percent is a milestone, not a hard entry requirement.

The 20 percent rule, and why it isn't a rule

At 20 percent deposit your loan is 80 percent of the property value, known as an 80 percent LVR (loan to value ratio). At that level you dodge Lenders Mortgage Insurance, which is a premium that protects the lender, not you, if you can't repay. It's the cleanest way in. But saving 20 percent in a rising market can feel like chasing a bus you never catch, so plenty of buyers go in with less and manage the trade-offs.

Getting in with less than 20 percent

• Pay LMI and buy sooner. With as little as 5 to 10 percent saved, you can often still borrow. You'll pay for LMI, but if prices are climbing faster than you can save, buying earlier can still work out ahead. I explain the cost in the LMI guide.
• Use a government guarantee. Eligible first home buyers may be able to buy with a 5 percent deposit and no LMI, because the government guarantees part of the loan. Eligibility and property price caps change, so this is one to check for your situation.
• Have a family guarantor. A parent can use equity in their own home as extra security, which can push your effective LVR below 80 percent without them handing over cash. It's a big ask of them, so it's worth understanding the risks properly.

The costs on top of your deposit

This is where budgets get blown. Your deposit is not the only cash you need at settlement. Depending on the price and whether you're a first home buyer, you may also need to cover:

• Stamp duty, unless a first home buyer concession applies to you. In NSW eligible first home buyers may pay no transfer duty up to a threshold and a reduced rate a bit above it, but the thresholds change, so check where you sit.
• Conveyancing or solicitor fees for the legal side of the purchase.
• Building and pest inspections, and a valuation if the lender needs one.
• Moving costs, council rates adjustments and a buffer for the first few months.

The right deposit strategy depends on your income, how fast you can save, and what's happening with prices where you're buying. There's no single correct answer, which is exactly why it's worth a conversation. Start with the first home buyer page, or work out your ceiling first with the borrowing power guide.