Why a 20% Deposit Is a Game-Changer for Home Buyers (and How to Get There)

Saving for a home deposit can feel like one of the biggest hurdles to buying your first home, especially as property prices continue to rise across Australia. While it’s possible to buy with less, reaching a 20% deposit is often seen as the “gold standard” for home buyers. But why does this particular number matter so much? And how can you realistically get there without feeling like you’ll never catch up?

Why-a-20-Deposit-Is-a-Game-Changer-for-Home-Buyers-and-How-to-Get-There

What Does a 20% Deposit Mean?

A 20% deposit simply means you’ve saved an amount equal to 20% of your property’s purchase price.

For example:

  • On a $600,000 home, 20% equals $120,000.
  • The remaining 80% (or $480,000) would be covered by your home loan.

That deposit acts as a buffer for the lender, reducing their risk and showing you can manage money responsibly.

Why 20% Makes a Difference

You Can Avoid Lenders Mortgage Insurance (LMI)
If you borrow more than 80% of a property’s value, most lenders will require you to pay Lenders Mortgage Insurance (LMI). This protects the lender (not the borrower) in case you can’t meet repayments. LMI can cost thousands, depending on the loan amount. By saving a 20% deposit, you can often avoid that extra cost altogether, keeping more money in your pocket for moving or setup expenses.

Better Loan-to-Value Ratio (LVR)
Your Loan-to-Value Ratio (LVR) is the percentage of the property’s value you’re borrowing. A lower LVR (like 80%) can make you look like a lower-risk borrower to lenders. Lenders often view lower-LVR applications more favourably, which can open up more loan options.

Greater Financial Flexibility
Having a solid deposit gives you more flexibility when negotiating with lenders, and potentially a smaller loan amount, meaning lower repayments and less interest paid over the life of the loan.

But What If You Don’t Have 20% Yet?

Plenty of Australians buy homes with smaller deposits, sometimes as little as 5%, especially under certain government initiatives or first home buyer programs.

However, smaller deposits can come with trade-offs:

  • Paying Lenders Mortgage Insurance (LMI);
  • Stricter lending assessments;
  • Higher ongoing repayments or less equity upfront.

That’s why it’s worth weighing up both sides carefully, and seeking independent advice if you’re unsure.

How to Work Toward a 20% Deposit

Reaching 20% might seem daunting, but steady progress is possible with the right approach.

Create a Clear Goal and Timeline
Set a realistic savings target based on the area you want to buy in. Knowing your goal helps you stay focused and track progress.

Automate Your Savings
Set up automatic transfers to a separate savings account each payday. Even small, consistent contributions add up over time, and show lenders a pattern of disciplined saving.

Reduce Unnecessary Debt
Credit cards, personal loans, and Buy Now Pay Later accounts can affect your borrowing power. Paying these down can help free up income for saving and improve your financial profile.

Look Into Government Support Options
There are First Home Guarantee and Regional First Home Buyer Guarantee programs that may allow eligible buyers to purchase with as little as 5% deposit without LMI. However, eligibility criteria apply, and not everyone will qualify. Always check official government websites or speak with a licensed professional for up-to-date details.

Consider a Family Guarantee (Carefully)
Some parents may offer to use equity in their home as limited security for their child’s deposit. This can help buyers enter the market sooner, but it’s a serious financial commitment and should only be done after both parties seek independent legal and financial advice.

A 20% deposit can make home ownership smoother and more cost-effective, but it’s not the only way to get there. Every buyer’s situation is different. The key is to understand your options, be patient with your progress, and seek independent professional advice before making any big financial moves. The expert team at BrokerCo are here to help.

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