In short: Most lenders will approve a home loan with a 5% deposit, but 20% avoids lenders mortgage insurance (LMI). On a $650,000 Craigieburn home, that is $32,500 at 5% or $130,000 at 20%. Under the First Home Guarantee, eligible buyers can use 5% with no LMI. On top of the deposit, budget roughly 2–5% of the price for stamp duty, conveyancing and fees.
The deposit is the single biggest hurdle for most Melbourne buyers, and the "20% rule" you hear about is only one of several paths. This guide shows exactly how much cash you need at different price points, what LMI costs if you go in with less, what other upfront costs eat into your savings, and how first home buyers in the north of Melbourne routinely get in with far less than 20%.
Deposit needed at 5%, 10% and 20%
Your deposit is the difference between the purchase price and the loan the lender will give you. The loan-to-value ratio (LVR) is the loan as a percentage of the property's value. A 20% deposit means an 80% LVR; a 5% deposit means a 95% LVR.
| Purchase price | 5% deposit (95% LVR) | 10% deposit (90% LVR) | 20% deposit (80% LVR) |
|---|---|---|---|
| $500,000 | $25,000 | $50,000 | $100,000 |
| $650,000 | $32,500 | $65,000 | $130,000 |
| $800,000 | $40,000 | $80,000 | $160,000 |
Those figures are the deposit alone. They do not include stamp duty, legal costs or lender fees, which are covered below. Use the deposit savings calculator to model how long it will take to reach each target from your current savings rate.
Why lenders care about 80% LVR
Above 80% LVR, the lender's risk rises, so it either charges LMI, requires a guarantor, or relies on a government guarantee. Below 80% you generally get access to the sharpest rates, fewer conditions and no insurance premium. That is why 20% is the benchmark, not because it is a legal requirement.
What LMI costs if you have less than 20%
Lenders mortgage insurance protects the lender, not you, if you default and the sale of the property does not cover the debt. It is a one-off premium, usually added to the loan rather than paid in cash. Indicatively, and depending on the lender and insurer:
| LVR | Indicative LMI (% of loan) | Example on $650,000 purchase |
|---|---|---|
| 85% | around 1% | $552,500 loan, roughly $5,500 |
| 90% | around 2% | $585,000 loan, roughly $11,700 |
| 95% | around 4–4.5% | $617,500 loan, roughly $26,000 |
The jump from 90% to 95% is steep, which is why many buyers push to reach a 10% deposit before buying. Run your own numbers with the LMI calculator and read understanding LVR and LMI for how the premium is calculated.
Ways to avoid LMI with less than 20%
- First Home Guarantee. Eligible first home buyers purchase with 5% and the federal government guarantees the rest, so no LMI. See the First Home Guarantee guide.
- Guarantor loan. A parent's property secures part of your loan, often taking your effective LVR to 80% with little or no deposit. See buying with a guarantor.
- Professional LMI waivers. Some lenders waive LMI to 90% LVR for doctors, dentists, lawyers, accountants and other listed professions.
- Help to Buy. The federal shared equity scheme needs only a 2% deposit for income-eligible buyers. See Help to Buy explained.
The other upfront costs you must budget for
A common shock for first-time buyers is discovering the deposit is not the whole story. On top of the deposit you need cash for:
| Cost | Typical range (Victoria) |
|---|---|
| Stamp duty (land transfer duty) | Nil to $600,000 for eligible first home buyers; otherwise $34,070 on $650,000 |
| Conveyancing or solicitor | $1,200–$2,500 |
| Building and pest inspection | $400–$700 |
| Lender application/settlement fees | $0–$1,000 |
| Title transfer and mortgage registration | Roughly $200–$400 combined |
| Moving, utility connections, basic furniture | $2,000–$5,000 |
First home buyers purchasing under $600,000 avoid duty entirely, and the concession tapers to $750,000. Non-first-home buyers or those above the caps should check the stamp duty calculator before setting a budget. The upfront costs calculator pulls all of these together in one figure.
Worked example: a $650,000 house in Craigieburn
Say you are a couple buying an established four-bedroom home in Craigieburn for $650,000 as your first home.
Path A: 20% deposit, no LMI
- Deposit: $130,000
- Loan: $520,000
- Stamp duty: approximately $11,357 (first home buyer sliding concession applies between $600,001 and $750,000)
- Conveyancing and inspections: about $2,500
- Total cash needed: roughly $144,000
- Repayment for illustration, at 6.00% p.a. over 30 years: about $3,118 per month
Path B: 5% deposit under the First Home Guarantee
- Deposit: $32,500
- Loan: $617,500
- LMI: nil (government guarantee)
- Stamp duty: approximately $11,357
- Conveyancing and inspections: about $2,500
- Total cash needed: roughly $46,500
- Repayment for illustration, at 6.00% p.a. over 30 years: about $3,703 per month
Path C: 5% deposit without the guarantee
- Same $32,500 deposit and $617,500 base loan
- LMI indicatively around $26,000, capitalised into the loan, making it roughly $643,500
- Repayment for illustration, at 6.00% p.a. over 30 years: about $3,858 per month
Path B gets you into the same house nearly $100,000 sooner than Path A, at the cost of about $585 a month in extra repayments. Path C shows why the guarantee matters: it saves around $26,000 in insurance and roughly $155 a month for the life of the loan.
Worked example: a Sunbury house-and-land package at $600,000
House-and-land packages in Sunbury, Mickleham and Wollert have a different cash-flow shape because you settle the land first and then draw the construction loan in stages.
- Land $300,000, build contract $300,000, total $600,000
- 5% deposit: $30,000 (the builder usually wants a 5% deposit on the build contract too, but this comes out of your overall deposit at land settlement and construction start)
- Stamp duty: charged on the land only, and nil for an eligible first home buyer because $300,000 is under $600,000
- First Home Owner Grant: $10,000, because it is a new home under $750,000
- LMI: nil under the First Home Guarantee, or indicatively about $24,000 at 95% LVR without it
That $10,000 grant can be counted toward your deposit by most lenders, so a Sunbury build can be one of the cheapest ways into the market. Read the First Home Owner Grant guide and house and land vs established before deciding.
Deposit sources lenders accept
Usually part of it does. Most lenders want to see 5% of the purchase price in genuine savings, meaning money you have held or accumulated over at least three months. The rest can come from a gift, the sale of shares, a tax refund or the First Home Owner Grant.
Acceptable sources typically include:
- Savings built up over time in your own account
- Term deposits and shares held for at least three months
- Equity in a property you already own
- Rental history (some lenders accept 12 months of on-time rent in place of genuine savings)
- A gift from parents, with a signed letter confirming it is non-repayable
Sources that cause problems include cash that appeared in your account last week, personal loans, credit card advances and money borrowed from friends. The full rules are in genuine savings explained.
How much deposit you can realistically save
The right target depends on the price bracket you can afford, and that depends on borrowing power, not just deposit. A useful order of operations:
- Check your borrowing power to see the maximum loan you could service at your rate plus the 3 percentage point APRA buffer.
- Add your deposit to that loan to get your realistic ceiling price.
- Work out duty and costs at that price.
- Set your savings target as deposit plus costs, then pick a monthly savings figure and timeline.
For example, a couple earning a combined $150,000 might have a borrowing capacity around $650,000–$700,000 depending on debts and dependants. With $50,000 saved, they could look at homes up to about $700,000 under the First Home Guarantee, or up to $500,000 with a 10% deposit without it.
Deposit checklist before you apply
- At least 5% of your target price in genuine savings, held three months
- Extra cash for conveyancing, inspections and lender fees (allow $3,000–$5,000)
- Stamp duty confirmed, or exemption confirmed if you are a first home buyer under $600,000
- Bank statements for the last three to six months showing consistent savings
- Gift letter drafted if parents are contributing
- Credit cards paid down (limits count against borrowing power even if unused)
- First Home Guarantee eligibility checked with the eligibility calculator
Common mistakes
Saving for the deposit and forgetting the costs. Buyers regularly reach $32,500 for a $650,000 home, then discover they need another $15,000 for duty and fees. Always plan for deposit plus costs.
Assuming 20% is compulsory. Waiting years to reach 20% while prices rise can cost more than LMI or a slightly higher repayment would have.
Spending the deposit on a car or holiday before settlement. Lenders re-check accounts before settlement. A large withdrawal can void your approval.
Parking savings in an account that shows no history. Moving money between accounts is fine, but lenders want to trace it. Keep statements for every account the money passed through.
Ignoring credit card limits. A $15,000 limit can cut borrowing power by around $60,000, which changes how far your deposit stretches.
Buying at 95% LVR without checking the LMI quote. Two lenders can quote thousands of dollars apart for the same loan. A broker compares them.
Frequently asked questions
Can I buy a house with a 5% deposit in Victoria?
Yes. Many lenders approve loans at 95% LVR, and eligible first home buyers can use the First Home Guarantee to buy with 5% and pay no LMI, up to $950,000 in Melbourne and Geelong. Without the guarantee you will usually pay LMI, which on a $617,500 loan is indicatively around $26,000. You still need to pass the lender's serviceability test at your rate plus 3 percentage points.
How much deposit do I need for a $600,000 house?
At 5% you need $30,000, at 10% $60,000 and at 20% $120,000. If you are an eligible first home buyer, stamp duty is nil at $600,000, so your remaining costs are conveyancing, inspections and lender fees, roughly $3,000–$5,000. If you are not a first home buyer, add $31,070 in duty to the amount you need.
Is LMI a one-off cost?
Yes. LMI is a single premium charged when the loan settles. It can be paid in cash or added to the loan, which is what most borrowers do. If you later refinance to another lender while still above 80% LVR you will pay a new premium, because the insurance is tied to the original lender, so try to reach 80% before switching.
Can my parents give me the deposit?
Yes, gifted deposits are accepted by most lenders, but they usually still want 5% of the price in your own genuine savings, or evidence of a clean 12-month rental history instead. Your parents sign a gift letter confirming the money is not a loan. Alternatively, they can act as guarantor using equity in their home, which can remove the need for a cash deposit entirely.
Does the First Home Owner Grant count toward my deposit?
In most cases, yes. Lenders will usually count the $10,000 grant as part of your contribution when you buy or build a new home under $750,000. It does not, however, count as genuine savings, so you will still typically need 5% of your own money held for three months alongside it, unless the lender has a policy exception.
How long does it take to save a house deposit in Melbourne?
At $1,500 a month it takes about 22 months to reach $32,500 (5% of $650,000) and roughly seven years to reach $130,000 (20%). That gap is why low-deposit options exist. Use the deposit savings calculator with your own figures, and remember interest on savings and any First Home Owner Grant shorten the timeline.
Talk to GNT Finance
Not sure whether to buy now with 5% or wait for 10%? Gorakh Timilsina spent years as a senior credit officer assessing exactly these applications, and can show you which lenders will accept your deposit, what LMI would cost, and whether the First Home Guarantee fits. There is no cost to you for our home-loan service in most cases.
Book a free consultation or call 0426 403 703.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.