10% deposit home loan: what you need to know

You can get a home loan with a 10% deposit in Australia. If you have the borrowing capacity, many lenders will approve you with a 10% deposit. Though you will typically need to pay Lenders Mortgage Insurance (LMI).

LMI is a one-off insurance premium that protects the lender, not you, if you default on the loan. It adds to your upfront costs, but it is not a barrier to buying. Many Australians buy their home with a 10% deposit and factor LMI into their budget from the start. You may be able to avoid LMI by choosing a lender that waives LMI and has a higher interest rate, utilise a professional waiver for certain jobs, use government schemes or a family guarantor.

Can you buy a house with a 10% deposit?

You can buy a house in Australia with a 10% deposit. You cover your share of the purchase price upfront, and you borrow the remaining 90% from a lender. Keep in mind that lenders will assess your application based on your income, expenses, savings history, and credit record, not just your deposit size.

A 10% deposit means your loan-to-value ratio (LVR) is 90%, which sits above the 80% threshold that usually triggers LMI. Some lenders like Unloan may allow you to buy with a 10% deposit and no LMI. However, a higher interest rate applies compared to buying with a 20% deposit. If you go with a lender that has LMI, make sure you budget for it as part of your upfront costs.

How much do you need to deposit on different purchase prices?

A 10% deposit is one-tenth of the property's purchase price. Here are some examples.

Your deposit is not all you need to save. You also need funds to cover stamp duty, conveyancing fees, building inspections, and moving costs. These vary by state but can add several thousand dollars to your upfront costs.

How much can you borrow with a 10% deposit?

Your borrowing power depends on your income, living costs, existing debts, and the property price, not your deposit alone.

A lender looks at what you can comfortably repay each month after all other financial commitments. Two buyers with the same 10% deposit can have very different borrowing limits based on their income and expenses. A borrowing power calculator can give you a realistic estimate before you start looking at properties.

What is LMI and how does it affect a 10% deposit home loan?

LMI is Lenders Mortgage Insurance. It is a premium you pay usually when your deposit is below 20% of the property price. In other words, it usually applies when your LVR is above 80%.

LMI protects the lender if you cannot repay the loan. It does not give you any personal cover. The cost varies depending on the loan amount and your LVR.

At a 90% LVR, LMI is generally higher than it would be at an 85% LVR. Some lenders may add LMI to the loan balance, so you pay it off gradually rather than upfront. However, this means you pay interest on the LMI amount over time.

Can you avoid LMI with a 10% deposit?

A 10% deposit means you will usually pay LMI. There are a few situations where you may avoid it:

• You qualify for a government scheme that guarantees the gap between your deposit and 20%.
• Some lenders may waive LMI for buyers in eligible professions, such as doctors and lawyers.
• Some lenders (like Unloan) offer a higher interest rate instead of paying LMI.
• A family member acts as a guarantor using equity in their own property.

Outside these situations, budget for LMI as a real upfront cost.

Please note that Unloan doesn't support loans with a family guarantor.

What government schemes can help with a low deposit?

The Australian Government's 5% Deposit Scheme and Help to Buy Scheme helps eligible buyers get a home with a smaller deposit and no LMI. The federal government covers the gap between your deposit and 20%, so the lender is protected without you paying the premium. Please note that Unloan doesn't participate in the Australian Government 5% Deposit Scheme (formerly the Home Guarantee Scheme), shared equity or other government-supported home buyer assistance schemes.

Australian Government 5% Deposit Scheme

First home buyers can purchase with a minimum 5% deposit under the 5% Deposit Scheme, without paying LMI. This scheme is for owner-occupiers buying their first home. It involves the Australian Government providing a guarantee to your lender to help you get a loan with a small deposit, but you’re responsible for all costs and repayments.

Also under this scheme, single parents or single legal guardians with at least one dependent child can buy with a minimum 2% deposit. This applies to both first home buyers and previous homeowners who do not currently own property.

Find out more at Australian Government 5% Deposit Scheme https://firsthomebuyers.gov.au/australian-government-5-percent-deposit-scheme

Australian Government Help to Buy Scheme

Help to Buy is a shared equity scheme that allows first home buyers to buy with a 2% deposit, without paying LMI. Under this scheme, the Australian Government will contribute 30% (existing homes) or 40% (newly built homes) of the purchase price, meaning you share ownership with the government. Eligibility criteria applies and there are only 10,000 places available each year.

Find out more at Australian Government Help to Buy Scheme https://firsthomebuyers.gov.au/australian-government-help-buy-scheme

If you are not a first home buyer

If you have owned property before, most federal guarantee schemes are limited or unavailable to you. In that case, a 10% deposit home loan with LMI is a common path, or you could choose a lender that charges a higher interest rate instead of LMI. A mortgage broker or lender can advise on your specific circumstances.

Is a 15% deposit better than 10%?

A 15% deposit is better than a 10% deposit for lowering your LMI cost. It reduces your LVR to 85%, which lowers your LMI premium compared to a 90% LVR loan. You still pay LMI unless you reach the 20% threshold, but the cost is meaningfully less.

Whether it is worth waiting to save the extra 5% depends on your situation. If property prices are rising in your target area, the cost of waiting may outweigh the LMI saving.

In a stable or slower-moving market, saving a little longer could reduce your total costs. It comes down to your timeline, your market, and your savings capacity.

What about a 5% deposit, or even less?

Can you buy a house with a 5% deposit?

You can buy a house with a 5% deposit through the 5% Deposit Scheme. Eligible first home buyers can purchase with a 5% deposit and avoid LMI.

Outside of the scheme, a 5% deposit is harder to get approved with a lender. It will also attract a higher LMI premium than a 10% deposit.

Can I buy a house with a $5,000 deposit?

A $5,000 deposit on its own is unlikely to be enough for a standard home loan in Australia's current property market. On most properties, $5,000 represents well under 1% of the purchase price, far below what lenders require. Government schemes require at least 2% for single parents and 5% for first home buyers.

In practice, $5,000 is a starting point for your savings, not a workable deposit on its own for most properties.

What are the other upfront costs of buying a home?

Your deposit is the largest upfront cost, but it is not the only one. Budget for these additional costs before you make an offer:

• Stamp duty, a state government tax calculated on the purchase price. It varies significantly by state and whether you are a first home buyer.
• Conveyancing or solicitor fees, a legal professional prepares and reviews your contract and handles the transfer of ownership.
• Building and pest inspections, a professional checks the property for structural issues and pest damage before you commit.
• Lenders Mortgage Insurance, payable when your deposit is below 20%.
• Loan application or establishment fees, charged by some lenders to set up your loan. Not all lenders charge these.
• Moving costs, removalist fees or van hire on settlement day.

These costs vary by state, property type, and lender. Set aside a buffer beyond your deposit figure to cover them comfortably.

What does a 10% deposit home loan look like in practice?

On a $600,000 purchase, a 10% deposit is $60,000 and you borrow $540,000, giving a 90% LVR:

• Purchase price: $600,000
• 10% deposit: $60,000
• Loan amount: $540,000
• LVR: 90%

At 90% LVR, LMI applies. LMI costs vary by lender and loan amount, so get a quote specific to your situation.

You'll also need to add stamp duty (which varies by state and buyer type), plus conveyancing and inspection fees. So, your total savings needed will be more than $60,000.

If you saved $75,000 instead, a 12.5% deposit on a $600,000 property, your LVR drops to 87.5%. LMI still applies, but the premium is lower. Each extra dollar saved above 10% reduces your LMI cost until you reach the 20% mark.

What should you look for in a 10% deposit home loan?

You should look at the interest rate, fees, LMI terms, offset and redraw features, and any discounts. When you are comparing options consider:

• The interest rate, even a small difference in rate has a big impact over a 25–30 year loan term.
• Fees, application fees, ongoing monthly fees, and discharge fees add up. Some lenders charge none of these.
• LMI terms, find out whether LMI is added to your loan or payable upfront, and get a quote so you know what to budget.
• Offset and redraw, these features let you reduce the interest you pay over time. Check whether your lender offers them.
• Loyalty or rate discounts, some lenders reduce your rate the longer you stay with them, which rewards you for being a reliable borrower.

Ongoing costs once you own your home

Your mortgage repayment is the biggest ongoing cost, but home ownership comes with other regular expenses too. Budget for:

• Council rates, levied by your local council, usually quarterly.
• Water rates, charged by your water utility.
• Building and contents insurance, protects the structure and your belongings.
• Strata or body corporate fees, payable if you buy an apartment or townhouse.
• Maintenance and repairs, an ongoing cost of owning property.

Planning for these costs before you buy means you will not be caught short once you are in the home.

Frequently asked questions

Can I get a home loan with a 10% deposit if I am not a first home buyer?

Yes. A 10% deposit home loan is open to both first home buyers and people who have owned property before. First home buyers may also qualify for government guarantee schemes that cut or remove LMI. Previous owners generally need to pay LMI unless they meet specific eligibility criteria or choose a lender that has a higher rate instead of LMI.

Does a 10% deposit affect my interest rate?

Your deposit size can influence the interest rate a lender offers you. A higher LVR sometimes means a slightly higher rate, though this varies by lender. Comparing multiple lenders is a worthwhile way to find a competitive rate at 90% LVR.

Can I use the First Home Owner Grant as part of my deposit?

The First Home Owner Grant (FHOG) is a state government payment available to eligible first home buyers. The grant amount and eligibility rules vary by state.

Some lenders will count the FHOG toward your deposit, and some will not. Confirm this with your lender before you factor it into your savings plan.

With Unloan, if you’re eligible for the First Home Owner Grant these funds cannot contribute to your deposit. Speak to your conveyancer on how best to approach this.

How long does it take to save a 10% deposit?

The time depends on your income, expenses, and savings rate. Government schemes that allow 2% or 5% deposits can reduce the time needed to save significantly for eligible buyers. You have less to save before you buy, which speeds up the process.

About Unloan

Unloan is a digital home loan lender offering variable-rate mortgages for both purchases and refinancing, with no application fees and no ongoing fees. Every year you stay with Unloan, you'll get an increasing loyalty discount up to 0.30% p.a. in year 30.