When to Save More or Borrow More for Your Deposit

The deposit you need depends on which loan structure you choose and whether you qualify for any of the government schemes designed to reduce the upfront cash required.

Buyers in Highett often ask whether they should delay a purchase to save a larger deposit or move forward with what they already have. The answer depends less on a percentage target and more on how the loan will be structured, what the lender will require in genuine savings, and whether LMI applies to your situation.

How Lenders Assess Your Deposit

Lenders calculate your deposit as a percentage of the property value, known as the loan-to-value ratio. A deposit of less than 20 per cent typically requires LMI, which is a premium that protects the lender if you default. The premium increases on a sliding scale as your deposit decreases. At 10 per cent, the cost is noticeably higher than at 15 per cent.

Borrowers purchasing in suburbs like Highett, where the median for units and houses varies, need to factor in how that valuation affects the amount of LMI payable. A lender will use their own valuation, which may differ from the contract price, and the LMI premium is calculated on the higher loan amount relative to that valuation. If the valuation comes in lower than expected, you may need to increase your deposit to avoid a larger premium or a declined application.

Lenders also distinguish between genuine savings and non-genuine savings. Genuine savings include funds held in your own accounts for at least three months, equity from an existing property, or proceeds from the sale of assets. A cash gift from family is generally not considered genuine savings unless it has been held in your account for the required period. Most lenders require at least 5 per cent of the purchase price to come from genuine savings when your deposit is below 20 per cent.

Government Schemes That Reduce Deposit Requirements

The Australian Government 5% Deposit Scheme allows eligible first home buyers to purchase with a 5 per cent deposit without paying LMI. The guarantee provided by Housing Australia takes the combined deposit and guarantee to 20 per cent, which satisfies the lender's security requirement. The property price cap in Victoria is $950,000 for Highett, as it is classified within a capital city area.

Applications are made through participating lenders, not directly through Housing Australia. Not all lenders offer the same loan features under the scheme. Some provide access to offset accounts and split loan structures, while others may have more limited product options. It's worth comparing what each participating lender can offer rather than assuming all structures are the same.

The scheme has no annual place limits and no income caps, which means it's open to a much wider group of buyers than earlier iterations. Single parents or legal guardians may be eligible to purchase with a deposit as low as 2 per cent under a separate guarantee tier.

Help to Buy is another option for buyers who meet the income thresholds. The government contributes up to 30 per cent of the purchase price for an existing home or up to 40 per cent for a new home in exchange for an equity stake. You still need a minimum 2 per cent deposit, and the income cap from 1 July 2026 is $103,000 for individuals or $165,000 for joint applicants. The scheme cannot be combined with the 5% Deposit Scheme, so you'll need to choose which structure works for your situation.

Victorian Stamp Duty Relief and How It Affects Upfront Costs

First home buyers in Victoria receive a full stamp duty exemption on properties valued up to $600,000 and a concession on properties between $600,001 and $750,000. This applies to both new and established homes, provided the property will be your principal place of residence and you move in within 12 months of settlement.

For a unit in Highett, the exemption can reduce your upfront costs significantly, which means you may not need to save as much for settlement as you initially expected. Settlement costs typically include legal fees, building and pest inspections, and any lender application fees. Without a stamp duty bill, those remaining costs become much more manageable.

Buyers using one of the government schemes can also access the stamp duty relief, provided they meet the eligibility criteria for both. This stacks the savings and makes the upfront cash requirement much lower than it would be without either concession.

Comparing a 10 Per Cent Deposit With LMI to a 20 Per cent Deposit Without It

Consider a buyer purchasing a two-bedroom unit in Highett. If they proceed with a 10 per cent deposit, they will pay LMI. The premium varies depending on the loan amount and the lender's chosen insurer, but it typically adds several thousand dollars to the upfront cost, which can be capitalised into the loan rather than paid in cash.

If the same buyer waits to save a 20 per cent deposit, they avoid LMI entirely but delay their purchase. During that time, property values may increase, which means they're saving toward a moving target. They're also paying rent while they save, which is money that doesn't contribute to equity.

For buyers who plan to hold the property long term, paying LMI and entering the market sooner can result in greater equity growth than the cost of the premium, especially in suburbs where demand remains consistent. For buyers who may sell or refinance within a few years, the upfront cost of LMI becomes harder to justify, and a larger deposit may be the more practical choice.

Your decision also depends on your borrowing capacity. A buyer with a strong income and stable employment may find that LMI is a minor cost relative to the value of entering the market now. A buyer with a borderline serviceability position may prefer to increase their deposit to lower the loan amount and improve their chances of approval.

How Deposit Size Affects Your Loan Features

Loans with a deposit below 20 per cent may come with restrictions on certain features. Some lenders do not offer offset accounts or interest-only periods on loans that require LMI. Others may offer these features but at a higher interest rate or with additional conditions.

If you're comparing home loan options and you want access to an offset account, check whether that feature is available at your deposit level with each lender. An offset account can reduce the interest you pay over time by linking your savings to your loan balance, but not all lenders make that feature available across all LVR bands.

Split loan structures, where part of your loan is fixed and part is variable, are generally available regardless of deposit size, though the rate discount offered may differ depending on your LVR. Buyers who want the certainty of a fixed rate on a portion of their loan can usually access that structure even with a 5 or 10 per cent deposit.

When Saving More Makes Sense

There are situations where increasing your deposit is the right move. If your borrowing capacity is limited and a lower loan amount is the only way to secure approval, saving more is necessary. If you're purchasing an investment property, a larger deposit reduces your loan amount and improves your cash flow, which is particularly relevant given the changes to negative gearing that apply to established properties purchased after 12 May 2026.

Buyers who are close to a threshold where LMI drops significantly, such as moving from 12 per cent to 15 per cent, may find that a few extra months of saving results in a noticeable reduction in upfront costs. It's worth running the numbers at each deposit level to see where the cost difference sits.

If you're not ready to commit to a specific property or location, waiting and saving more gives you additional flexibility when the right opportunity appears. The deposit you have determines how quickly you can move once you've found something suitable.

Using Equity or Family Assistance to Increase Your Deposit

Some buyers have access to equity in an existing property, either their own or a family member's, which can be used to increase the deposit or avoid LMI altogether. A family guarantee, where a parent or sibling uses the equity in their property as additional security, allows you to borrow up to 100 per cent of the purchase price without paying LMI.

This structure requires the guarantor to understand the risk they're taking on. If you default, the lender can pursue the guarantor's property to recover the shortfall. Most buyers who use a family guarantee aim to refinance within a few years once they've built enough equity to release the guarantor from the loan.

Cash gifts from family are another option, though as mentioned earlier, the funds generally need to be held in your account for at least three months to be considered genuine savings. If you're planning to use a gift as part of your deposit, factor in that timing when you're working out when you can proceed with a purchase.

Whether you move forward now with the deposit you have or wait to save more depends on your borrowing capacity, your access to government schemes, and how quickly property values are moving in the area you're targeting. The upfront cost of LMI is often offset by the equity you build while holding the property, but that outcome depends on how long you plan to stay and what the market does during that time. Call one of our team or book an appointment at a time that works for you.

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