How Much Deposit Do I Need? Deposits & Savings Explained

**How much deposit do I need?**

Owning a home is a goal for many people. However, navigating industry terms and requirements can make the process feel overly complex. Before entering the property market, it helps to understand key details about deposits and savings to better prepare for purchasing a property.

**Savings vs deposit**

When purchasing a home, having sufficient deposit or savings is essential. It is important to distinguish between 'savings' and a 'deposit', as lenders view them differently. Examples of a deposit include gift funds, tax refunds, or inheritances applied toward the purchase. These lump sums contribute to the overall deposit but do not qualify as genuine savings. Conversely, 'genuine savings' refers to funds accumulated or held over time—typically at least three months—from regular income.

Some lenders will consider gifts and lump-sum payments as genuine savings if held in an account for more than three months. Requirements for a 5% genuine savings contribution vary between institutions. Most lenders require genuine savings when borrowing more than 85% of the property value, though some set the threshold at 90%, and others do not require genuine savings at all. However, lenders offering 'no genuine savings' options may assess applications more strictly or offer different pricing structures.

**Minimum deposit requirements**

A 5% deposit is often discussed as the minimum requirement for buying a home. While some lenders offer 95% loan-to-value ratio (LVR) loans, restrictions around lenders mortgage insurance (LMI) apply. In many cases, the LMI premium is added to the loan balance, requiring the borrower to contribute extra upfront funds to keep the total loan within borrowing limits. A limited number of lenders permit borrowing a true 95% of the purchase price while capitalizing the LMI premium on top, bringing the total borrowing amount to between 97% and 99% of the property value.

True 95% loan options generally carry higher interest rates and LMI costs. Holding a deposit of 7% to 8% provides access to a broader selection of lenders and loan terms. Nevertheless, a 5% deposit remains a viable pathway to market entry where eligible.

**Keystart 2%**

For buyers seeking lower deposit requirements, Keystart provides an alternative. Keystart does not charge lenders mortgage insurance, though interest rates may be higher than standard market offerings. Keystart requires a 2% deposit, with policy options available that assess overall budgeting capability when genuine savings are not present.

Keystart is an initiative designed to assist lower-income earners and first home buyers. It operates with specific eligibility criteria, including maximum income limits.

**Guarantors**

Using a guarantor—typically an immediate family member—is another pathway to secure a home loan. A security guarantee uses available equity in the guarantor’s property to reduce the loan-to-value ratio below 80%. A limited guarantee is placed over the guarantor's property, usually covering 20% to 25% of the purchase price. This structure allows buyers to enter the market with a reduced deposit or no deposit, while avoiding the cost of lenders mortgage insurance.

**Additional funds needed**

First home buyers may qualify for stamp duty concessions, but buyers purchasing a subsequent property need to budget for full stamp duty costs. Reviewing current stamp duty thresholds based on the target purchase price ensures adequate funds are set aside.

Additional upfront costs include council rates, water rates, and settlement agent fees. These expenses vary by location and timing, as rate adjustments occur at settlement. Budgeting up to 1% of the purchase price typically covers these ancillary costs, with exact figures provided by the settlement agent during the transaction.

In summary, funding a deposit involves choosing a pathway suited to individual circumstances. Maintaining consistent savings habits, separating genuine savings from one-off deposit funds, and evaluating low-deposit or guarantor structures help determine the most suitable approach.