Getting into your first home means building a deposit that covers more than just the upfront payment to the lender.
You'll also need to account for government charges, lender fees, and potentially Lenders Mortgage Insurance if your deposit sits below 20% of the property value. The total amount varies depending on the price range you're targeting, the loan structure you choose, and whether you qualify for any state-based concessions or guarantor support.
How Much Deposit Do You Actually Need?
Most lenders require at least 5% of the purchase price as a genuine deposit, though you'll pay LMI on any loan above 80% of the property value. A 20% deposit eliminates LMI entirely and typically gives you access to better interest rate discounts. For someone purchasing at a median price point in Sydney's inner west, that 20% threshold represents a significant savings goal, but it's not the only viable path forward.
Consider a buyer targeting a two-bedroom unit. With a 10% deposit, they'd need to demonstrate genuine savings for at least that portion, plus set aside funds for stamp duty, legal fees, building and pest inspections, and lender application costs. Stamp duty alone can add several thousand dollars depending on the property value and whether any first home buyer concessions apply.
What Counts as Genuine Savings?
Lenders distinguish between genuine savings and gifted deposits. Genuine savings are funds you've accumulated over at least three months in your own accounts, such as savings accounts, term deposits, or shares. Gifted funds from family members can form part of your deposit, but most lenders still want to see that you've saved a portion yourself to demonstrate your ability to manage repayments.
Some lenders accept the First Home Super Saver Scheme as genuine savings, where you've made voluntary contributions to your super and can withdraw up to a capped amount for a property purchase. Rental payment history showing consistent payments over 12 months can also strengthen your home loan application in some cases, particularly if you've been paying rent that exceeds what your mortgage repayment would be.
Avoiding LMI With a Guarantor or Smaller Deposit
If you're working with less than 20% saved, a family guarantor can help you avoid LMI by using equity in their own property as additional security. The guarantor doesn't hand over cash but provides the lender with confidence that the loan is covered even at a higher loan to value ratio. This arrangement works particularly well when your income supports the repayments but your savings haven't caught up yet.
Alternatively, some lenders offer reduced LMI or LMI waivers for certain professions such as medical practitioners or lawyers. If you're in one of these fields, it's worth exploring whether your occupation gives you access to a lower deposit threshold without the usual insurance premium.
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How to Calculate Your Full Upfront Cost
Start with the purchase price, then add stamp duty using the NSW Revenue calculator if you're buying in Sydney. First home buyers purchasing below the state threshold may qualify for full or partial stamp duty exemptions, which can save tens of thousands of dollars. Legal fees typically range from $1,500 to $2,500, while building and pest inspections add another $500 to $800 depending on the property type.
Lender application fees vary, with some charging upfront fees and others rolling costs into the loan. If you're paying LMI, that premium is usually capitalised into the loan amount rather than paid upfront, but it still increases your total borrowing and affects your repayment amount.
In a scenario where someone is purchasing with a 10% deposit and paying LMI, the total cash required at settlement includes the deposit itself, stamp duty (less any concessions), legal costs, inspection fees, and any lender fees not capitalised. That total often exceeds the deposit amount alone by a significant margin, so planning for the full cost upfront avoids last-minute shortfalls.
Structuring Your Loan to Reduce Ongoing Costs
Once you've saved your deposit, the way you structure your loan affects both your repayment amount and your ability to build equity over time. A variable rate loan with an offset account lets you park any additional savings in an account linked to your loan, reducing the interest charged without locking your funds away. That flexibility suits buyers who want to maintain access to cash while still minimising interest.
A split loan combining fixed and variable portions gives you rate certainty on part of the loan while keeping the flexibility to make extra repayments on the variable portion. This structure works well if you expect your income to increase or if you want to hedge against rate movements without committing entirely to a fixed period.
Where First Home Buyers in Sydney Can Access Support
Sydney buyers have access to the First Home Buyer Assistance Scheme, which provides stamp duty concessions or exemptions depending on the purchase price and property type. The scheme applies to both new and established properties, though the thresholds differ. If you're purchasing in inner west suburbs, the scheme can reduce your upfront costs significantly, making a smaller deposit more viable.
The federal First Home Guarantee allows eligible buyers to purchase with as little as 5% deposit without paying LMI, though the scheme has limited places each financial year and applies only to properties below a regional price cap. If you meet the eligibility criteria, this can be one of the most effective ways to enter the market sooner without needing a guarantor.
For those exploring their options, understanding your borrowing capacity early in the process helps you set a realistic savings goal and avoid targeting properties outside your lending limit.
When to Lock in Pre-Approval Before You Finish Saving
Getting home loan pre-approval before you've saved the full deposit can clarify how much more you need and whether your current income supports your target purchase price. Pre-approval typically lasts three to six months, so timing it to align with when you'll be ready to buy means you can move quickly once you find the right property.
Pre-approval also identifies any issues with your credit file, employment history, or existing debts that might affect your application. Resolving those issues before you start house hunting saves time and reduces the risk of a declined application after you've committed to a contract.
If your circumstances change during the pre-approval period, such as a pay rise, new debt, or additional savings, updating your broker ensures your approval reflects your current position. That clarity matters when you're competing in a market where sellers expect buyers to move quickly and unconditionally.
Call one of our team or book an appointment at a time that works for you to discuss your savings plan, loan structure, and how to position yourself for a strong application when you're ready to buy.
Frequently Asked Questions
How much deposit do I need to avoid paying LMI?
A deposit of at least 20% of the purchase price will let you avoid Lenders Mortgage Insurance in most cases. If you have less than 20%, a family guarantor or certain profession-based waivers may help you avoid LMI even with a smaller deposit.
What counts as genuine savings for a home loan?
Genuine savings are funds you've accumulated over at least three months in your own accounts, such as savings accounts, term deposits, or shares. Gifted funds can form part of your deposit, but lenders usually want to see that you've saved a portion yourself.
Can I use a guarantor to reduce my deposit requirement?
Yes, a family guarantor can use equity in their own property as additional security, allowing you to borrow with a smaller deposit and potentially avoid LMI. The guarantor doesn't provide cash but gives the lender confidence that the loan is covered.
What other costs should I budget for besides the deposit?
You'll need to budget for stamp duty, legal fees, building and pest inspections, and lender application fees. Stamp duty can be reduced or waived for first home buyers in NSW depending on the purchase price and whether you meet eligibility criteria.
When should I get pre-approval for a home loan?
Getting pre-approval before you finish saving can clarify how much more you need and confirm your borrowing capacity. Pre-approval typically lasts three to six months, so timing it to align with when you'll be ready to buy helps you move quickly once you find a property.
