Low Deposit Home Loans

What Is a Low Deposit Home Loan?

A low deposit home loan is a mortgage that allows you to buy property with less than the conventional 20% deposit.

In Australia, a deposit below 20% is generally considered a low deposit because it results in a loan-to-value ratio (LVR) above 80%.

The LVR is the percentage of the property’s value that you’re borrowing.

For example, if you buy a $700,000 home with a $35,000 deposit, you’re contributing 5% of the price and borrowing the remaining $665,000. This gives you a 95% LVR, assuming the lender accepts the purchase price as the property value.

Some specialist lenders can go further, offering up to 98% LVR for eligible borrowers.

This means having less than 20% saved doesn’t automatically prevent you from buying. However, you’ll still need to meet the lender’s borrowing and eligibility requirements.

Key Points

• Minimum deposit: Many lenders accept a 5% or 10% deposit, while selected products and government schemes allow eligible borrowers to purchase with as little as 2%.
• 98% home loans: Some specialist lenders offer loans up to 98% LVR without traditional Lenders Mortgage Insurance (LMI), although other fees apply.
• LMI isn’t always required: Government guarantees, eligible professional waivers, guarantor arrangements and alternative specialist loan structures may help you avoid traditional LMI.
• Additional savings may be needed: Stamp duty, legal fees, lender charges and other purchasing costs can add significantly to your deposit.
• Approval depends on more than savings: Income, borrowing capacity, credit history, genuine savings and the property itself all matter.

How Do Low Deposit Home Loans Work?

Low deposit home loans allow you to borrow a larger proportion of a property’s value while contributing a smaller amount towards the purchase price.

The process typically involves:

• Establishing your deposit: Work out how much you have available and where the funds came from.
• Checking borrowing capacity: The lender assesses your income, expenses, debts and ability to afford repayments.
• Comparing lending options: Depending on your circumstances, this could include a conventional 90–95% LVR loan, a specialist 98% home loan, a government-backed scheme or a guarantor loan.
• Calculating total purchase costs: Include stamp duty, legal fees, applicable LMI or alternative lender fees, and any other settlement costs.
• Checking the property: The lender must accept the property as security and obtain a satisfactory valuation.
• Applying for approval: Once an appropriate loan is identified, you can prepare the required documents and consider pre-approval.

The smaller your deposit, the larger the loan may be. This usually increases your repayments and can restrict the lenders and products available.

Who Qualifies for a Low Deposit Home Loan

To qualify for a low deposit mortgage in Australia, lenders generally need to be satisfied that you can afford the loan and that the property is acceptable security.

The main requirements include:

• Sufficient income and borrowing capacity: You need enough assessable income to meet the lender’s repayment and expense tests, including assessment at a rate above the advertised interest rate where applicable.
• Acceptable credit history: Recent defaults, late repayments or other credit issues may reduce the lenders available, especially at high LVRs.
• Evidence of deposit funds: The lender will need to verify your savings and any funds received from family or other sources.
• Genuine savings: Some lenders want evidence that you’ve saved consistently over a specified period. Requirements differ, and some lenders accept rental history or shorter savings periods in certain cases.
• An acceptable property: Some high-LVR lenders restrict particular postcodes, apartment developments, property sizes or construction types.
• Eligible borrower circumstances: Residency, visa status, employment type and existing property ownership can affect the lending options available.

What if Your Situation Isn’t Straightforward?

Having a good income but a smaller deposit is only one type of lending challenge.

Some applicants have recently changed jobs or are still on probation. Others have received a family gift, have substantial rental-payment history, or are applying with a partner on a different visa.

These situations don’t always rule out a low deposit mortgage.

Our brokers can assess the details against lenders’ credit policies, explain which criteria may be flexible and identify where additional documentation is required.

What Is the Minimum Deposit for a Home Loan in Australia?

The minimum home loan deposit can range from 2% to 20% or more, depending on the lender, property and financing arrangement.

Some guarantor loans may also allow you to purchase without contributing a cash deposit.

Here’s how different deposit sizes compare on a $700,000 property.

Deposit	Amount saved	Base loan	LVR
2%	$14,000	$686,000	98%
5%	$35,000	$665,000	95%
10%	$70,000	$630,000	90%
20%	$140,000	$560,000	80%

These examples exclude LMI, alternative lender fees and other purchase costs. Actual loan amounts may change based on the lender’s valuation and fee arrangements.

A larger deposit reduces how much you need to borrow and may give you access to more lenders, different rates and fewer additional costs.

But reaching 20% isn’t always necessary if you meet the requirements for a low deposit mortgage.

Use our Home Loan Deposit Calculator to estimate your deposit and total funds required.

What Low Deposit Home Loan Options Are Available?

There isn’t just one type of low deposit home loan in Australia.

The available options have different deposit requirements, costs, eligibility criteria and restrictions.

1. Buy With a 2% Deposit Through a Specialist 98% Home Loan

Some specialist lenders now allow eligible borrowers to purchase a property with a deposit as low as 2%, without relying on government assistance or a family guarantor.

A lender on our panel is offering a 98% home loan with no LMI on owner-occupier and investment home loans. Unlike conventional high-LVR mortgages that require LMI, this product uses a Rate Reduction Fee (RRF).

The RRF is a separate fee calculated based on factors including the loan amount, LVR and selected loan product.

This option may suit borrowers who:

• Have a small deposit but sufficient income to afford repayments.
• Are buying their first home or another owner-occupied property.
• Want to explore alternatives to government deposit schemes.
• Are purchasing an eligible investment property.
• Need to explore refinancing with limited equity.

However, lender-specific restrictions apply.For the 89% home loan with no LMI, the restrictions are on property location, property type and it is not available for construction lending. Borrowers must also meet the lender’s credit and serviceability criteria.

Important: A 2% deposit doesn’t mean you only need 2% of the property price in total savings. The required funding position must also account for any applicable RRF, other fees and purchasing costs.

Learn more about 98% Home Loans and 2% Deposit Options.

2. Buy With a 5% Deposit

A 5% deposit home loan allows eligible buyers to borrow approximately 95% of the property’s accepted value.

For a $600,000 home, that means contributing $30,000 towards the purchase price and borrowing $570,000 before any capitalised fees.

Many banks and lenders offer 95% LVR home loans, although traditional LMI will generally apply unless you qualify for an exemption or alternative arrangement.

Some lenders allow you to add the LMI premium to the loan, subject to their maximum LVR limits.

A 5% deposit can also be enough under the Australian Government 5% Deposit Scheme for eligible first-home buyers.

Learn more about 5% Deposit Home Loans.

3. Buy With a 10% Deposit

A 10% deposit reduces your base loan to approximately 90% of the property’s accepted value.

Compared with a 5% deposit, this can offer a wider choice of lenders and may reduce LMI and interest costs.

However, traditional LMI may still apply because you’re borrowing more than 80% of the property’s value.

Some eligible borrowers, including people in certain professions, may qualify for an LMI waiver.

Learn more about 10% Deposit Home Loans.

4. Use the Australian Government 5% Deposit Scheme

The Australian Government 5% Deposit Scheme allows eligible buyers to purchase a home with a smaller deposit without paying LMI.

Under the current scheme:

• Eligible first-home buyers, including certain returning buyers, can purchase with a minimum 5% deposit.
• Eligible single parents and single legal guardians with dependants can purchase with a minimum 2% deposit.
• There are no income caps or limits on the number of available places.
• Property-price limits and participating-lender credit requirements still apply.

The government provides a guarantee to the participating lender. It doesn’t contribute a deposit or acquire an equity share in the home.

Learn more about the Australian Government 5% Deposit Scheme.

5. Use the Help to Buy Scheme

Help to Buy is a shared-equity scheme that allows eligible Australians to purchase with a minimum 2% deposit.

Under this arrangement, the government may contribute up to 30% of the price of an existing home or 40% of a new home.

This reduces the mortgage amount you need to borrow, but the government receives a corresponding equity interest in the property.

Help to Buy has separate eligibility criteria, including income, property ownership and price-cap requirements.

Unlike a specialist 98% mortgage, the government’s contribution reduces your home loan rather than simply allowing you to borrow a higher percentage of the price.

Learn more about the Help to Buy Scheme.

6. Use a Guarantor or Qualify for an LMI Waiver

If a close family member is willing and eligible to provide additional property security, a guarantor loan may reduce the cash deposit required and potentially avoid LMI.

However, the guarantor’s property is exposed to risk if you cannot meet your repayments.

Some borrowers may instead qualify for a professional or lender-specific LMI waiver, depending on their occupation, income, deposit and other criteria.

Explore Guarantor Home Loans and Waived LMI Home Loans.

How Much Cash Do You Actually Need for a Low Deposit Home Loan?

Your minimum deposit and the total cash needed to complete the purchase are not the same thing.

For example, you may have $14,000 saved towards a $700,000 property and meet the basic 2% deposit calculation.

But that doesn’t mean $14,000 will cover the full transaction.

You may also need money for:

• Stamp duty or transfer duty
• Legal and conveyancing fees
• Building, pest or strata inspections
• Mortgage registration and transfer fees
• Lender application, valuation or settlement fees
• LMI or an alternative lender fee, depending on the loan
• A funding shortfall if the lender values the property below its purchase price

First-home-buyer concessions may reduce some of these costs.

Some lender fees or LMI premiums may be financed, but the amount and treatment depend on the loan’s conditions.

Home Loan Experts Insight: Check Your Funding Position, Not Just Your Deposit

Two buyers with the same savings and purchase price can have very different loan options.

One may qualify for a government-backed loan without LMI. Another may need a conventional mortgage with LMI. A third might qualify for a specialist 98% loan with an alternative fee.

A Home Loan Experts broker can prepare a funding-position assessment that considers your deposit, borrowing capacity, applicable lender fees and the funds needed at settlement.

That calculation can reveal a shortfall before you commit to purchasing a property.

Do You Have To Pay LMI With a Low Deposit?

Not always.

Lenders Mortgage Insurance is generally required on conventional home loans where the LVR exceeds 80%, unless an exemption or waiver applies.

LMI protects the lender against certain losses if the borrower defaults and the security property is insufficient to cover the outstanding loan.

It does not protect you against losing your home or having difficulty making repayments.

The cost depends on several factors, including:

• Loan amount
• LVR
• Lender and mortgage insurer
• Property and loan purpose
• Other applicable pricing factors

Can You Add LMI to Your Home Loan?

Yes, some lenders allow the LMI premium to be capitalised, meaning it’s added to your mortgage balance rather than paid entirely upfront.

However, this increases the amount you owe, and you’ll generally pay interest on the capitalised premium over time.

Lenders also place limits on how much LMI can be added.

Use our LMI Calculator to estimate the premium that may apply.

How Can You Avoid LMI With a Small Deposit?

Depending on your circumstances, you may be able to avoid traditional LMI through:

• An eligible government-backed loan.
• A family guarantor arrangement.
• An occupational or lender-specific LMI waiver.
• A specialist loan that uses an alternative fee structure.

Remember that avoiding traditional LMI doesn’t necessarily mean avoiding additional lending costs.

Compare the total cost before choosing a loan solely because it is advertised as having no LMI.

Is a 5%, 10% or 20% Deposit Better?

A larger deposit can reduce your mortgage balance, repayments and total interest costs, but it may require you to delay buying.

The right deposit depends on how much you can afford to borrow, your savings, available loan options and your ongoing financial position.

Comparison	Potential benefit	Trade-off
5% vs 10%	Buy with less cash upfront	A larger loan and potentially higher LMI
10% vs 20%	Buy without saving another 10%	LMI may still apply and the loan remains larger
5% vs 20%	Enter the market with significantly less saved	Higher borrowing, possible LMI and less starting equity
2% specialist loan vs 5% traditional loan	Lower property deposit may be possible	Alternative fees, product restrictions and a larger loan

A 90% LVR loan generally means you contribute 10%, while a 95% LVR loan generally means you contribute 5%. The lower-LVR option may offer more competitive pricing or a reduced LMI premium.

But a larger deposit doesn’t automatically make a purchase affordable.

Should You Buy With a Small Deposit or Save Until You Have 20%?

There is no single answer.

Buying with a smaller deposit may allow you to enter the property market earlier, but you could face higher repayments and costs.

Saving until you have 20% may reduce your debt and avoid LMI, but it means delaying the purchase while continuing to save.

Home Loan Experts Senior Mortgage Broker Vivienne Than encourages buyers to focus on when their cash flow comfortably supports a purchase rather than trying to identify a perfect time to buy.

Compare the repayments, upfront costs, savings you would retain and financial risks under both scenarios.

You can also explore our Buy Now or Save More Calculator.

Can Investors Get Low Deposit Home Loans?

Yes. Low deposit investment home loans are available from selected lenders, including specialist products offering up to 98% LVR for eligible investment purchases.

However, investors may face different requirements from owner-occupiers.

Lenders can restrict the number of properties you already own, the type of property you’re purchasing, how rental income is assessed and which repayment options are available.

For example, some specialist 98% lending products only support borrowers buying or refinancing their sole investment property and require principal-and-interest repayments.

Borrowing with a very small deposit also means starting with limited equity. Investors should allow for maintenance, rates, insurance, vacancies and changes in interest rates when considering affordability.

A larger deposit may reduce the mortgage and offer a wider selection of investment loan products.

Are There Disadvantages to Low Deposit Home Loans?

Low deposit home loans can make purchasing more accessible, but they involve risks that should be understood before applying.

• Higher repayments: Borrowing more generally means higher repayments, assuming comparable loan terms and interest rates.
• LMI or other fees: Some low-deposit products have significant additional charges that increase the total cost of borrowing.
• Limited equity: A decline in property value can quickly reduce your equity or leave you owing more than the property’s value.
• Fewer lender options: Very high-LVR loans can have stricter eligibility, location and property requirements.
• Refinancing restrictions: If your equity is low or property values decline, refinancing into a different loan may be difficult or expensive.

You should consider what happens if your expenses rise, interest rates increase or your income changes after settlement.

How To Apply for a Low Deposit Home Loan

Start by calculating both the property deposit and your total available funds.

Next, have your borrowing capacity assessed so you know whether your income supports the amount you would need to borrow.

A mortgage broker can then compare available lending pathways, including:

• Conventional low-deposit mortgages with LMI.
• Eligible government-guaranteed loans.
• Specialist high-LVR loans with alternative fees.
• Guarantor or waived-LMI options.

Once you’ve identified an appropriate option, you can prepare the required documents and seek pre-approval where available.

Before signing an unconditional contract, ensure you understand the finance requirements, valuation risks and legal obligations involved.

How Home Loan Experts Can Help You Buy With a Smaller Deposit

The most suitable low deposit home loan isn’t necessarily the one with the lowest advertised deposit or interest rate.

It’s the option that fits your eligibility, available funds, repayments and longer-term plans.

Home Loan Experts can help you compare different lender policies, identify potential LMI alternatives, check your genuine savings and calculate how much money you’ll need to complete the purchase.

Whether you’re buying your first home, upgrading, investing or exploring a specialist 98% mortgage, our brokers can help you understand the available options and prepare a suitable application.

Talk to a low deposit mortgage expert from Home Loan Experts. Call us on 1300 889 743 or enquire online today.

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This information is general in nature and does not consider your personal objectives, financial situation or needs. Credit criteria, fees, charges, product terms and lender eligibility requirements apply. Loan availability and maximum LVRs may change. Examples are illustrative and do not constitute approval or an offer of credit.