If you’re a first home buyer, one of the first questions you’ll ask is: “How much deposit do I actually need?”

You’ll hear different answers everywhere. Twenty percent. Ten percent. Five percent. Sometimes even less. It gets confusing quickly, especially when everyone seems confident but no one explains the context behind their number.

Here’s the truth: there isn’t one single answer that applies to everyone. The deposit you need depends on your situation, your goals, and what options make sense for you right now.

Let’s break it down properly.

The Traditional Answer: 20%

You’ll often hear that you need a 20% deposit. This figure comes from how lenders assess risk.

When you borrow 80% or less of a property’s value, you generally avoid paying Lenders Mortgage Insurance (LMI). LMI is a one-off cost that protects the lender, not you, if you’re borrowing a higher percentage of the property’s value.

Here’s an example: if you buy a property for $800,000 and put down a $160,000 deposit (20%), your loan would be $640,000. At this level, you’ll typically have access to more lenders, better interest rates, and fewer restrictions.

That said, very few first home buyers start with 20%. That’s completely normal, and lenders know it.

What Most First Home Buyers Actually Do: 5% to 10%

In reality, most first home buyers purchase with a deposit between 5% and 10%.

This is where things become more flexible, but it’s also where understanding the trade-offs becomes important.

Around 10%

With a 10% deposit, you’ll usually pay LMI, but you’ll still have access to a solid range of lenders. Interest rates might be slightly higher than with a larger deposit, but for many buyers, this is a comfortable middle ground that lets them enter the market sooner.

Using our $800,000 example, a 10% deposit would be $80,000, leaving a loan of $720,000. For many people, this strikes the right balance between waiting longer to save and getting into the market now.

Around 5%

Yes, buying with just 5% is possible, but it comes with tighter requirements.

At this level, LMI costs are higher and you’ll have fewer lenders to choose from. Your application needs to be strong in other areas: solid income, stable employment history, clean credit history, and most lenders will want to see genuine savings (not just money that’s appeared recently).

For that same $800,000 property, a 5% deposit would be $40,000, with a loan of $760,000.

This option works well for buyers with good incomes and otherwise strong financial profiles, but it’s not suitable for everyone.

What Actually Counts as a Deposit?

This is where many first home buyers get caught out.

A deposit typically includes your cash savings, funds you’ve held for a minimum period (usually three months), and sometimes gifted money from family.

However, not all money is treated the same way by lenders.

Most lenders want to see genuine savings: money you’ve built up over time through regular contributions. This demonstrates financial discipline and your ability to manage money consistently.

Gifted funds can help boost your deposit, but they’re assessed differently. Lenders usually require documentation (like a statutory declaration from the person gifting the money), and in many cases, gifted funds won’t completely replace the need for genuine savings.

The Deposit Isn’t the Only Cost

Another common mistake is thinking that once you’ve saved your deposit, you’re ready to buy.

Unfortunately, there are other upfront costs you need to factor in:

  • Stamp duty (unless you qualify for concessions or exemptions)
  • Legal or conveyancing fees
  • Building and pest inspections
  • Loan establishment or application fees
  • Moving costs and connection fees

Depending on the property and which state you’re in, these costs can easily add up to tens of thousands of dollars.

This is why some buyers technically have enough for a deposit but still feel financially stretched when it’s time to actually purchase. Always budget for these additional costs from the beginning.

What About First Home Buyer Schemes?

Government schemes can reduce the deposit you need, but they’re not a blanket solution.

Programs worth knowing about include:

  • The First Home Guarantee (lets eligible buyers purchase with just 5% deposit while avoiding LMI)
  • The First Home Owner Grant (for eligible new builds)
  • Stamp duty concessions (varies by state)

These can genuinely help, but they all come with conditions: price caps, income limits, property type restrictions, and residency requirements. They’re best thought of as tools that might help your situation rather than something to rely on without understanding the fine print.

We can help you navigate which schemes you might be eligible for and whether they make sense for your goals.

Borrowing Capacity Matters Just as Much

This is a critical point that often gets missed.

Having a deposit doesn’t automatically mean you can borrow the rest.

Lenders look closely at:

  • Your income and employment stability
  • Your living expenses and spending patterns
  • Any existing debts (personal loans, car loans, credit cards, HECS/HELP)
  • How you’d cope with interest rate rises (lenders test this using a buffer rate)

It’s surprisingly common for someone to have saved enough deposit but not have enough borrowing capacity for the property they’re targeting.

This is exactly why understanding both your deposit position and your borrowing capacity early on can save a lot of frustration later.

So How Much Deposit Do You Really Need?

For most first home buyers, a deposit of 5% to 10% is realistic and achievable. Having 20% is ideal because it unlocks better rates and avoids LMI, but it’s definitely not a requirement to get started.

Rather than fixating on a specific percentage, it’s more helpful to look at the bigger picture:

  • What price range are you realistically targeting?
  • What options are available to you right now?
  • What trade-offs are you comfortable making?
  • How does your borrowing capacity line up with your goals?

A Final Thought

You don’t need to have everything figured out before you start asking questions.

In fact, most first home buyers speak to a broker much earlier than they expect, not to apply for a loan, but simply to understand where they stand and what a sensible plan looks like for them.

Getting clarity early removes a lot of pressure and helps you move forward with confidence instead of guesswork.

If you’re unsure where you’re at or what your next step should be, reach out for a free chat. We’re here to help you make sense of it all.