If you’re thinking about buying a home, chances are you’ve been told you need a 20% deposit, full stop. But in practice, the answer is more nuanced. The ideal deposit amount depends on your personal financial position, lender policy, and whether you’re eligible for government schemes. Let’s unpack it.

Why 20% became the benchmark

The “20% rule” isn’t a legal requirement, it’s a risk threshold. If your deposit is less than 20%, most lenders will require Lenders Mortgage Insurance (LMI), which protects them (not you) in case you default. LMI can cost thousands, depending on your loan size, and is either paid upfront or capitalised into your loan.

From a purely financial standpoint, a larger deposit does reduce risk:

• You borrow less and pay less interest over time
• You may access sharper rates
• You avoid the extra cost of LMI

But in a housing market like Australia’s, where median home prices in capital cities are often 8 to 10 times the average income, saving 20% can mean years of delay. That’s where alternative paths come in.

What’s the minimum you can get away with?

Technically, some lenders will accept as little as a 2–5% deposit, particularly for first home buyers. This is subject to strict credit criteria and may come with a higher interest rate or reduced product flexibility.

With government schemes like the First Home Guarantee, eligible buyers can purchase with a 5% deposit and no LMI, with the government acting as a guarantor. This can save tens of thousands, but places are capped and timing matters.

Other lenders offer family guarantee loans, where a parent or close relative offers part of their equity as security. This allows you to borrow up to 100% of the purchase price without LMI.

Should you aim for 20% anyway?

It depends. From a long-term affordability and risk management perspective, yes, a 20% deposit is a strong position. But if you have stable income, modest debts, and are ready to take on a mortgage, waiting years to save that much may not make sense — especially if property prices keep climbing faster than your savings rate.

In a low-yield, high-inflation environment, the opportunity cost of staying out of the market can be just as real as the cost of LMI.

Final thought

There’s no one-size-fits-all number when it comes to a home deposit. Your savings, income, goals, and even your timing all play a role. A larger deposit can reduce risk and long-term costs, but waiting too long could mean missing the market altogether.

If you're unsure what deposit target makes the most sense for you, it's worth having a broker review your options. At Divitis Finance we can help you understand what’s possible now, what support you might be eligible for, and how to plan strategically — so you’re not just saving but saving with a purpose.

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