Struggling to save a 20% deposit while renting or paying bills? You’re not alone. For many Australians, the idea of buying a home feels out of reach because of one big myth: you need a massive deposit to get started. But here’s the good news, there are situations where eligible buyers can purchase with as little as 5% deposit, and in some cases avoid LMI, depending on lender criteria and government scheme eligibility.
Let’s unpack the low-deposit home loan options that could get you into your first place sooner.
Do You Really Need a 20% Deposit?
Not necessarily. While a 20% deposit helps you avoid LMI, it’s not a hard rule. In fact, some lenders offer home loans with as little as a 5% deposit, particularly for eligible first-home buyers, subject to credit criteria.
Still, it’s essential to understand the trade-offs. Smaller deposits often mean more borrowing and potentially higher repayments, so it’s worth weighing up your options carefully.
What Is LMI — and Can You Avoid It?
Lenders Mortgage Insurance (LMI) is a fee charged when your deposit is under 20%. It protects the lender (not you) if you default on the loan. The cost can range from a few thousand to tens of thousands depending on your loan size and deposit.
But here’s the upside: there are ways around it.
3 Popular Low-Deposit Strategies for First-Home Buyers
1. First Home Guarantee (5% deposit, no LMI)
This federal government scheme lets eligible first-home buyers purchase with just a 5% deposit without paying LMI. This allows eligible first-home buyers to purchase with a 5% deposit without LMI. It can be a significant benefit for some buyers, noting that places are limited and eligibility applies.
2. Guarantor Loans
A family member (often a parent) can use the equity in their home to secure part of your deposit. This reduces the lender’s risk, in some cases this structure allows borrowers to be approved for a loan with little or no deposit, depending on lender policy and the guarantor’s circumstances. However, it’s a big financial commitment for your guarantor, so it’s vital everyone understands the risks.
3. Pay LMI and Get in Sooner
For some buyers, paying LMI can be a trade-off they consider if entering the market earlier aligns with their goals. Whether this is appropriate depends entirely on individual circumstances and market conditions. Think of it like a ticket to stop renting and start building equity sooner.
Small Deposit, Big Emotions
We get it. Saving a deposit can feel overwhelming, especially in today’s market. But many buyers are surprised to learn there are more pathways available than they first thought.
Knowing what’s actually possible (and what’s just outdated advice) can shift your whole outlook. You may be closer to your first home than you think.
Ready to Explore Low-Deposit Options?
If saving a huge deposit is holding you back, don’t make assumptions. There are regulated pathways, such as the First Home Guarantee or guarantor arrangements, that may assist eligible buyers depending on their circumstances.
Our free First Home Buyer e-book breaks it all down; deposit hacks, LMI explained, government schemes, pros and cons of each strategy, and practical tools to help you map your path.
Download your free copy of the HVCO e-book today and provide clearer guidance to help you understand your home-buying options.
