The short version
- With 10% down you'll usually pay lenders mortgage insurance, unless a scheme or guarantor covers it.
- More lenders accept 10% than 5%.
- Keep savings aside for buying costs and a buffer.
Can I buy with a 10% deposit?
Yes. Banks usually ask for 20% to avoid lenders mortgage insurance, but many lenders lend up to 90% of the property's value for buyers who meet their conditions. You'll usually pay LMI and a slightly higher rate than with a 20% deposit, unless you qualify for a government scheme, have a guarantor or get a lender's LMI waiver.
Lenders mortgage insurance
With less than a 20% deposit, most lenders charge lenders mortgage insurance (LMI). It protects the lender, not you, if you can't repay, and can cost thousands of dollars, either upfront or added to the loan. The cost depends on the property's value, the loan amount, the size of your deposit, and the lender's insurer.
LMI doesn't get you off the hook: if the home is sold for less than you owe, the insurer can still pursue you for the shortfall. You may avoid it with a guarantor, through a government scheme, or with a lender's waiver for some professions, such as doctors, lawyers and accountants. A mortgage broker can tell you which lenders take small deposits and how their LMI costs compare.
Buying with a guarantor
A parent or other family member can guarantee part of your loan, usually with the equity in their own home. Many lenders will then lend more than 80% of the price, sometimes all of it, without LMI.
The guarantor is responsible for the guaranteed amount if you can't repay, so it's a serious commitment. Most lenders insist they get independent legal advice first, and the guarantee can usually be released once you've paid the loan down or the property has grown in value.
Government help for first home buyers
Check what you're eligible for before you apply. Each scheme has its own rules and price limits.
- The 5% Deposit Scheme, run by Housing Australia, lets eligible first home buyers buy with a 5% deposit without paying LMI.
- The Family Home Guarantee lets eligible single parents and legal guardians buy with a 2% deposit.
- The First Home Owner Grant is a one-off payment from your state or territory, mostly for newly built homes.
- Stamp duty discounts or exemptions for first home buyers, set by each state and territory.
- The First Home Super Saver Scheme lets you save part of your deposit through voluntary super contributions.
Pros
- More lenders and rates to choose from than at 5%.
- Lower insurance cost than at 5%.
- Buy sooner than saving 20%.
Cons
- Lenders mortgage insurance still applies in most cases.
- Higher repayments than with a 20% deposit.
- Some lenders charge higher rates above 80% of the value.
What to compare
Start with the rate for your situation: the rate a lender offers depends on whether you'll live in the home or rent it out, how you repay, and the size of your deposit. The comparison above picks each lender's rate for your choices.
Then look past the rate.
- Fees: upfront fees, and annual package fees that often come with an offset account.
- Features: an offset account, redraw, extra repayments and the option to split the loan between fixed and variable.
- The comparison rate, which adds standard fees to the rate for an example loan of $150,000 over 25 years.
- Any cashback, but only after the rate and fees, since a higher rate can cost far more over the life of the loan.
Before you apply
Lenders look at your income, your debts and credit limits, your spending and your credit history. Paying down cards and cutting card limits can raise how much you can borrow.
Pre-approval tells you what a lender may lend, so you can house hunt with a budget. Each application can show on your credit report, so compare first and apply to one lender at a time.
Alternatives
- Saving to 20%, which avoids the insurance.
- A guarantor home loan.
- Government help for first home buyers.