Low Deposit Home Loans in Australia: Can You Buy With Less Than 20%?

The idea that you need a 20 per cent deposit to buy a home in Australia is one of the most persistent myths in property. While 20 per cent is the threshold at which Lenders Mortgage Insurance typically disappears, it is far from the only path to homeownership. Millions of Australians have bought with smaller deposits, and the options available to low-deposit buyers have expanded considerably in recent years.

This guide maps out every legitimate pathway to purchasing with less than 20 per cent down.

Why 20 Per Cent Became the Standard

The 20 per cent deposit benchmark exists because it is the point at which most standard lenders no longer require Lenders Mortgage Insurance. LMI protects the lender if a borrower defaults and the property sale does not cover the loan balance. Below 80 per cent LVR, the lender's risk is sufficiently cushioned by the borrower's equity that LMI is not required.

Above 80 per cent LVR, LMI is the lender's mechanism for managing the additional risk. The cost of LMI is passed on to the borrower.

But LMI can be avoided at lower deposit levels through several routes, and for some buyers it is worth paying as a cost of entering the market sooner.

The Options for Low Deposit Buyers

The First Home Guarantee (Five Per Cent Without LMI)

The First Home Guarantee is the Australian Government's most widely used first home buyer scheme. Eligible buyers can purchase with as little as five per cent deposit, and the government guarantees the difference between the deposit and 20 per cent. This means the lender treats the loan as if it has an 80 per cent LVR guarantee behind it, so no LMI is required.

From October 2025, the scheme has no annual cap on places. Eligibility requires Australian citizenship, not having previously owned property, and meeting income and property price cap requirements. Applications go through participating lenders.

The Family Home Guarantee (Two Per Cent for Single Parents)

Eligible single parents and single legal guardians can purchase with a two per cent deposit under the Family Home Guarantee. The government guarantees the remainder up to 18 per cent. The same no-cap arrangement applies from October 2025.

A Guarantor Loan

If a parent or close family member has equity in their own home, they can guarantee part of your loan. The guarantor's property provides additional security that reduces your effective LVR to 80 per cent or below, eliminating LMI. You still need some deposit, though some lenders accept as little as two to five per cent genuine savings alongside a guarantor arrangement.

LMI Waivers for Professionals

Many lenders offer LMI waivers for borrowers in specific high-income professions including doctors, dentists, pharmacists, lawyers, accountants, engineers and veterinarians. These programs allow qualified professionals to borrow up to 90 or even 95 per cent of a property's value without LMI.

Paying LMI and Accepting the Cost

Sometimes paying LMI is the pragmatic choice. If property prices in your target market are rising faster than your savings rate, entering the market sooner with a smaller deposit, and paying LMI as the cost of admission, can be financially better than waiting years to reach 20 per cent.

This is not a universal recommendation. It depends entirely on the price growth in your specific market, how long it would take you to save the remaining deposit and your risk tolerance. Run the numbers honestly before deciding.

Genuine Savings Requirements

One point that catches many low-deposit buyers off guard: lenders do not simply accept any source of funds as a deposit. Most lenders require a portion of the deposit to be genuine savings.

Genuine savings means money that has been accumulated by the borrower through regular saving over at least three months, demonstrated by bank statements. Gifted funds from parents, first home buyer grants and the proceeds of selling assets can contribute, but lenders typically require three to five per cent of the purchase price to come from genuine savings.

The First Home Guarantee does not override this requirement. Even under the scheme, lenders still need to see that your five per cent is genuinely yours.

What You Need in Practice for a Five Per Cent Deposit Purchase

To illustrate what a low-deposit purchase actually requires, consider a $600,000 home purchase with a five per cent deposit.

Five per cent deposit: $30,000. This needs to be demonstrable genuine savings.

Stamp duty (New South Wales example, no exemption): approximately $22,000 to $25,000. Note that some states offer stamp duty concessions or full exemptions for first home buyers under certain price thresholds, which can eliminate this cost.

Conveyancing and legal fees: approximately $1,500 to $2,500.

Building and pest inspections: approximately $600 to $900.

Lender application fees: $0 to $600 depending on lender.

Total funds needed: $30,000 deposit plus roughly $25,000 to $28,000 in purchase costs. Around $55,000 to $60,000 in total before you get to settlement.

This is substantially less than the $120,000 deposit a 20 per cent purchase would require, but it is not cheap. And in states without stamp duty concessions for first home buyers at this price point, the costs are higher.

Use the Stamp Duty Calculator and Purchasing Power tools at HomeLoanTools.com.au to get accurate cost estimates for your specific state and purchase price.

Risks to Understand With Low Deposit Loans

Buying with a small deposit means your equity buffer is thin. If property values fall shortly after you purchase, you can find yourself in a position where your home is worth less than your loan, commonly called negative equity or being underwater.

This is not necessarily catastrophic if you do not need to sell, since property values typically recover over time. But it limits your options. You cannot refinance or access equity when your LVR is above 100 per cent, and selling would crystallise a loss.

The risk is most relevant for buyers stretching to buy in markets where values are stretched or oversupplied.

Low Deposit Does Not Mean a Lower Quality Application

A small deposit is not a weakness in every lender's eyes. A borrower with five per cent genuine savings, clean credit history, stable employment and a strong income can be a very attractive application. The deposit size determines LMI exposure and some rate pricing, but a well-prepared application stands on far more than just the deposit figure.

Check your borrowing capacity and model different deposit scenarios using the free tools at HomeLoanTools.com.au.