Do You Really Need a 20% Deposit?

Do You Really Need a 20% Deposit to Buy Property in Australia?

Short answer: No, you don’t.

The 20% deposit rule is one of the most persistent myths in the Australian property market, and it’s costing people years. First home buyers across NSW sit on the sidelines saving, convinced they’re not ‘ready’ yet, when in many cases they already have what they need to move forward.

So where did this rule come from? Is there anything to it? And what are your real options if you don’t have 20% saved? Let’s break it down.

Where Did the 20% Rule Come From?

The 20% figure is tied to something called Lenders Mortgage Insurance, or LMI. When you borrow more than 80% of a property’s value (meaning your loan-to-value ratio (LVR) exceeds 80%) most lenders require you to pay LMI.

LMI is an insurance policy that protects the lender if you default on the loan and the sale of the property doesn’t recover the full amount outstanding. Critically, it protects the lender, not you. You pay for it, but you don’t benefit from it if things go wrong.

The cost can be substantial. On a $650,000 property with a 5% deposit, LMI might run to $15,000–$25,000 or more, depending on the lender and your LVR. That’s a real cost.

Over time, the advice to ‘save 20% to avoid LMI’ calcified into ‘you need 20% to buy a house.’ One was practical guidance about costs. The other became an unquestioned rule. And the difference matters enormously for first home buyers.

The Real Minimum Deposit Requirements in Australia

Here’s the actual picture:

Most lenders will consider loans with deposits as low as 5% of the purchase price
Some lenders will go to 95% LVR (5% deposit) as standard lending, subject to LMI and your serviceability
Through the federal government’s First Home Guarantee, eligible first home buyers can buy with 5% deposit and no LMI
Through a family guarantor loan, some buyers can purchase with minimal or no cash deposit at all
Some lenders offer LMI waivers for borrowers in specific professions

None of these are fringe products or risky shortcuts. They’re widely available, well-established structures used by thousands of buyers every year across Australia.

The True Cost of Waiting to Hit 20%

Let’s run a real scenario. You’re looking at a property in the Hunter Valley area worth $650,000. You currently have $40,000 saved – about 6% of the purchase price.

Your plan is to wait and save a full 20% deposit. Here’s what that looks like:

20% of $650,000 = $130,000
You have $40,000 saved — you need $90,000 more
You’re saving $1,500 per month
That’s 60 months — 5 years — of additional saving to hit $130,000 (not accounting for savings interest or property price changes)
During those 5 years, you’ll pay rent, let’s say $550/week = $28,600/year = roughly $143,000 over 5 years

So in this scenario, waiting to reach 20% means paying approximately $143,000 in rent that builds no equity, while chasing a target that keeps moving if property prices increase at all.

Now compare that to buying with 5% deposit (plus costs) using the 5% Deposit Scheme — which means you might need around $45,000–$55,000 upfront. You’re already most of the way there.

But What About LMI?

If you’re not using the 5% Deposit Scheme or a guarantor loan, you will need to pay LMI with a sub-20% deposit. And it’s a real cost, potentially $15,000–$25,000 on a $650,000 purchase at 5% deposit.

But here’s how to think about it:

LMI can often be capitalised into the loan, you don’t necessarily need the cash upfront
If paying LMI allows you to buy 3–5 years earlier, and your property gains even modest value in that period, the LMI cost may be more than offset by your equity gains
Every month you pay rent instead of a mortgage is a month you’re not building equity

This is not a blanket statement that LMI is always worth paying. Sometimes it’s not. The point is that the decision deserves proper analysis, not a reflexive assumption that it should always be avoided.

Property Price Growth and the Moving Target Problem

This is the part that stings for a lot of would-be buyers.

When you’re saving for a deposit, the target doesn’t stand still. If property prices rise, even modestly, the amount you need increases. And the amount you’d have earned in equity by buying earlier gets bigger.

To be clear: property values don’t always rise, and they can fall in the short term. We’re not making any prediction about what will happen in any specific market. But historically, Australian property has trended upward over long periods, which means the longer you wait, the harder it typically gets.

For buyers in the Central Coast and Hunter Region, local factors also matter: infrastructure investment, population growth, employment trends. Getting good local market knowledge – from a broker who works in your area, not just nationally – can help you think through the timing question more clearly.

When Does Saving for 20% Actually Make Sense?

We want to be fair about this. There are situations where saving closer to 20% genuinely makes sense:

If your income is uncertain or you have low employment stability right now
If your credit history has some blemishes that need time to improve
If you haven’t yet identified what you want to buy or where
If your post-purchase buffer would be dangerously thin
If LMI costs for your purchase price are particularly high and you’re only 12–18 months from 20%

There’s no shame in waiting if waiting is genuinely the right call. The problem arises when people wait not because it’s the right financial decision, but because they assumed 20% was required. Those are very different situations.

What First Home Buyer Support Is Available in NSW?

NSW first home buyers have access to a range of support that can make a meaningful difference to upfront costs:

First Home Owner Grant

Eligible buyers purchasing or building a new home in NSW may qualify for a $10,000 grant. Conditions and eligibility thresholds apply, confirm current details at Revenue NSW.

Stamp Duty Concessions

NSW first home buyers may pay significantly reduced or zero stamp duty depending on the purchase price and property type. On the right purchase, this can save $15,000–$25,000+ compared to what a general buyer would pay.

5% Deposit Scheme

As covered, eligible first home buyers can access the federal government’s scheme to purchase with 5% deposit and no LMI.

First Home Super Saver Scheme

If you’ve been making voluntary contributions to superannuation, you may be able to withdraw up to $50,000 of those contributions to use as a home deposit, with potential tax advantages compared to saving in a standard account.

Getting Clear on Your Actual Options

Here’s the most useful thing you can do right now: find out what your actual options are, based on your actual financial situation, not assumptions about what you think you need.

A mortgage broker who works in your area can review your income, savings, credit history, and circumstances, and give you a clear picture of what’s possible today, versus what might be possible in 6 or 12 months if you keep saving.

In our experience working with first home buyers across NSW, a significant portion of people who think they’re ‘not ready’ are already in a strong enough position to start the process seriously. The 20% rule was the thing holding them back, not their actual finances.

The Bottom Line

The 20% deposit rule is not a law. It’s not a universal truth. It’s a convention based on LMI thresholds and there are multiple legitimate, widely-used pathways to buy before you reach that mark.

Dismissing those pathways because of a rule you heard years ago isn’t financial caution. It’s potentially costing you equity, time, and money. Run your actual numbers. Understand your real options. Then decide.

→ Ready to find out what your options actually look like? Book a free, no-obligation chat with the team at Evergreen Lending Group. We work with first home buyers across NSW every day, and we’re happy to talk through your situation before you’re ‘officially ready.’

→ Also read: How to Buy a House with a 5% Deposit in NSW (2026 Guide)

→ Also read: Can You Buy a House with No Deposit? (Guarantor Loans Explained)

→ Also read: What is Lenders Mortgage Insurance (LMI) — And Is It Worth It?

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Credit eligibility criteria, terms, conditions, fees and charges apply. This article is for general informational purposes only and does not constitute financial or credit advice. Please speak with a qualified mortgage broker to understand what options may be available to you.

Evergreen Lending Group | Australian Credit Licence 486112 | Credit Representative 575199