Saving a 20% deposit while paying rent in Australia’s capital cities is a formidable challenge. In Sydney, 20% of the median house price is well over $200,000. For many first home buyers and even experienced purchasers, waiting until you have a full 20% deposit means missing years of potential capital growth. Low deposit home loans exist to bridge this gap — and with the right guidance, they can be a smart pathway into the property market.
What Is a Low Deposit Home Loan?
A low deposit home loan allows you to purchase property with a deposit of less than 20% — typically between 5% and 10%. The most common form involves borrowing at a high loan-to-value ratio (LVR) above 80%, which usually requires the payment of Lenders Mortgage Insurance (LMI) unless you qualify for a government scheme or lender exemption.
Options for Low Deposit Buyers
Standard low deposit loan with LMI — Borrow up to 95% LVR with LMI added to the loan. Most major and non-major lenders offer this. LMI premium is paid by you (upfront or capitalised) and protects the lender.
First Home Guarantee (FHBG) — The Federal Government guarantees up to 15% of the loan value for eligible first home buyers, allowing a 5% deposit with no LMI. Places are limited each financial year, so applying early is important.
Family Home Guarantee — Specifically for eligible single parents, allowing purchase with as little as 2% deposit and no LMI, with the government guaranteeing up to 18%.
Guarantor loan — A family member (usually parents) uses equity in their own property to guarantee the shortfall, eliminating the need for LMI even with a small deposit.
Professional LMI waivers — Certain professions (doctors, lawyers, accountants, engineers) qualify for LMI waivers at certain lenders, allowing borrowing up to 90% without the LMI premium.
What Does LMI Cost at Low Deposit Levels?
LMI premiums increase significantly as LVR rises. For a $600,000 loan at 90% LVR (10% deposit), LMI is typically $12,000–$16,000. At 95% LVR, LMI can reach $22,000–$28,000 on the same loan amount. These can be capitalised into your loan, but you’ll also pay interest on the LMI amount for the life of the loan.
Pros and Cons of Buying with a Low Deposit
Pros: Get into the market sooner and benefit from capital growth. Stop paying rent and start building equity. Access government grants for eligible properties. Take advantage of lower LMI at 85–90% vs the cost of waiting years longer.
Cons: LMI adds to your loan balance. Higher LVR means higher monthly repayments. Less buffer if property values fall in the short term. Some lenders restrict loan features (e.g. offset accounts) at high LVRs.
Is a Low Deposit Loan Right for You?
The right decision depends on the market you’re entering, how fast you can save, your risk tolerance, and what government schemes you qualify for. In a rising market, the cost of LMI is often dwarfed by the capital growth you’d miss by waiting. In a flat or declining market, having a larger buffer matters more.
A good broker will model both scenarios for you — the cost of buying now with LMI vs the cost of waiting to save a larger deposit — and help you make an informed decision.
Assembly Finance: Low Deposit Specialists
We help buyers at every deposit level find the right path into the property market. Whether it’s accessing a government guarantee, a guarantor loan, or the most competitive low-deposit rate available, we’ll compare your options across our full lender panel.
Contact James today for a free low-deposit home loan assessment.
