Preparing financially
Deposit, LVR and LMI
What counts as a deposit, how it determines your Loan-to-Value Ratio, and when Lenders Mortgage Insurance applies.
- Lenders generally want genuine savings; gifted funds and guarantors are common alternatives, each with their own conditions and risks.
- LVR (loan as a percentage of value) rises as your deposit share falls.
- LMI protects the lender, not you, and can be paid upfront or added to the loan.
- A smaller deposit can mean buying sooner but paying more in LMI and total interest.
What counts as a deposit
Lenders generally want to see "genuine savings" — funds accumulated over time, rather than a lump sum that appeared just before you applied. Gifted funds from family are commonly accepted but usually need a signed gift letter confirming it isn't a loan to be repaid. A guarantor (often a family member using their own property as additional security) can sometimes reduce or remove the need for a larger deposit, but it puts the guarantor's asset at risk if you can't repay. A deposit bond can substitute for a cash deposit at exchange, but it isn't the same as having the cash — you still need to fund the purchase at settlement. Note also that the contract deposit (paid to the agent/vendor at exchange, commonly 5-10% of price) and your home-loan deposit (the equity you bring to the loan itself) can be structured differently depending on your finance timeline.
LVR and LMI
Your Loan-to-Value Ratio (LVR) is the loan amount as a percentage of the property's value — a $720,000 loan on a $800,000 valuation is a 90% LVR. Above roughly 80% LVR, lenders commonly require Lenders Mortgage Insurance (LMI), a policy that protects the lender (not you) if you default and the sale proceeds don't cover the loan. LMI can be paid upfront or added to the loan (capitalised), which increases the loan balance and total interest paid over time. A smaller deposit generally means a higher LVR, a higher chance of needing LMI, and more total interest — weighed against the benefit of buying sooner rather than waiting to save a larger deposit while prices and rents may also move.
Worked example: a 5% deposit vs. waiting for 20%
Consider a buyer with a 5% deposit today versus the same buyer waiting several years to reach a 20% deposit. Buying sooner with 5% likely means a higher LVR (more likely to need LMI, or to use a government deposit scheme instead — see the government support guide), a larger loan balance, and more total interest paid over the life of the loan. Waiting for 20% avoids LMI and reduces the loan size, but carries its own risk: years of further saving while house prices and rents may also rise, and no guarantee the wait actually leaves the buyer better off. Neither path is universally correct — it depends on the buyer's income growth, the rate of local price growth, and how much they value certainty versus flexibility.
Practical checklist
Before finalising your deposit strategy
- Confirm whether your savings will be treated as 'genuine savings' by your lender
- If using a gift, prepare a signed gift letter from the giver
- Ask your lender or broker for an LMI estimate at your expected LVR
- Check whether a government deposit scheme (see Government Support) could reduce or remove the need for LMI
Relevant Delora tool
Questions for a professional
- At my likely deposit size, would I need LMI, and roughly how much?
- Would capitalising LMI into the loan or paying it upfront suit my situation better?
- What counts as 'genuine savings' with the lenders you compare?
Official resources
Sources and methodology
- Save for a house deposit — ASIC (Moneysmart) (retrieved 29 Jul 2026)
Figures on this page are drawn from Delora's local knowledge graph, refreshed from these primary sources and checked for changes on a regular schedule. If a figure here looks out of date, the official source above is always the authority — please let us know.