Everything You Need to Know About Home Loan Deposits

How Much Deposit Do You Actually Need?

Most lenders require a minimum deposit of 5% of the property's purchase price, though some circumstances allow for lower amounts through guarantor arrangements or specialist products. The amount you put down directly affects whether you'll pay Lenders Mortgage Insurance and what interest rate you'll access.

In Richmond, where the property market attracts both owner-occupiers and investors drawn to the suburb's proximity to the CBD and vibrant Church Street precinct, understanding deposit thresholds shapes what you can afford and when. A larger deposit reduces your loan to value ratio, which typically translates to better lending terms and lower ongoing costs.

Consider a buyer looking at a unit near Richmond Station. With a 10% deposit, they'd face LMI premiums that could add several thousand dollars to their upfront costs. At 20%, that charge disappears entirely. The difference isn't just about what you pay at settlement. It affects your borrowing capacity because lenders assess serviceability based on the full loan amount, including any LMI capitalised into the loan.

What Counts as Genuine Savings?

Lenders define genuine savings as funds you've accumulated over at least three months in your own account. This can include money in transaction accounts, term deposits, or offset accounts, but excludes recent windfalls like tax refunds, bonuses paid within the last three months, or gifts that haven't been held long enough.

The three-month rule exists because lenders want evidence of disciplined saving behaviour, not just access to cash at a point in time. If you're applying with a 5% or 10% deposit, most lenders require at least half of that deposit to come from genuine savings. Someone buying with a 15% deposit generally has more flexibility around the source of funds, though each lender sets their own policy.

For Richmond buyers, particularly younger professionals working in the CBD or Cremorne office precincts, this often means demonstrating a pattern of regular contributions to a savings account rather than relying solely on a lump sum from selling shares or receiving a family contribution. Where you do receive gifted funds, a signed letter from the donor confirming the money doesn't need to be repaid becomes part of your home loan application.

The Real Cost Beyond Your Deposit

Your deposit is only one component of what you'll need at settlement. Stamp duty, conveyancing fees, building and pest inspections, and lender establishment fees add to the total amount required upfront.

Stamp duty in Victoria varies based on property value and whether you qualify for concessions. First home buyers purchasing in Richmond may access reduced or waived stamp duty if the property falls below the state's threshold for the First Home Buyer Duty Exemption or Concession. A property purchased near the current threshold could see stamp duty savings of tens of thousands of dollars compared to buying slightly above it.

Conveyancing typically costs between $1,500 and $3,000 depending on the complexity of the sale. Building and pest inspections add another $500 to $800 combined. Lender application fees range from zero to around $600, though some lenders waive these as part of promotional packages. When you add these costs together, a buyer needs to budget an additional amount on top of their deposit, which affects how much they should have saved before they start looking seriously.

How Lenders Mortgage Insurance Changes Your Timeline

Lenders Mortgage Insurance protects the lender if you default, and you'll pay it on any loan where your deposit is below 20%. The premium is calculated as a percentage of your loan amount and increases as your LVR rises. At 95% LVR, the premium can represent more than 3% of your loan amount, while at 90% it might sit closer to 2%.

What matters for Richmond buyers is that LMI can either be paid upfront at settlement or capitalised into your loan amount. Capitalising it means you don't need the cash immediately, but you'll pay interest on that premium over the life of your loan. If you're purchasing with a smaller deposit to enter the market sooner, this trade-off often makes sense, particularly if property values are rising and waiting another year to save a larger deposit costs you more in price growth than you'd save in LMI.

Some lenders offer low LMI loans or reduced premiums for certain professions or under specific circumstances. Others have arrangements where LMI is waived at higher LVRs for borrowers who meet particular criteria. These products aren't widely advertised, and eligibility varies, but they can materially change the amount you need to have saved before you're ready to buy.

Can You Borrow the Deposit?

Borrowing your deposit using an unsecured personal loan or credit card is generally not accepted by lenders. They assess your serviceability based on all your liabilities, and taking on additional debt to fund a deposit both increases your commitments and raises concerns about your savings discipline.

A guarantor arrangement is different. This involves a family member, usually a parent, using equity in their own property to support your application. The guarantor's property acts as additional security, which allows you to borrow up to 100% of the purchase price without paying LMI in some cases. The guarantor doesn't hand over cash. They provide a limited guarantee, and their exposure reduces as you pay down your loan or build equity through capital growth.

For a Richmond buyer with parents who own property elsewhere in Melbourne, this can mean purchasing sooner without needing to save a 20% deposit. The risk sits with the guarantor if you default, so it requires careful discussion and independent legal advice for all parties. Once your equity position improves, the guarantee can typically be removed by refinancing, which releases the guarantor's property from the arrangement. You can explore these structures further when reviewing your home loan options.

Should You Wait to Save 20% or Buy Sooner?

The answer depends on how quickly property values are rising relative to how fast you can save. If you can save an additional 10% deposit in two years, but property values in Richmond increase by 8% per year during that time, you've actually lost ground. The property you could have purchased earlier is now further out of reach despite having more saved.

On the other hand, if the market is flat or falling, taking time to build a larger deposit means you'll avoid LMI, access lower interest rates, and potentially buy the same property at a reduced price. The calculation isn't purely financial either. Buying sooner might mean securing a specific location or property type that suits your circumstances, even if it costs slightly more in the short term.

In our experience, Richmond buyers often face this tension because the suburb's limited housing stock, particularly for well-positioned apartments near transport and amenities, means desirable properties don't stay on the market long. If your deposit sits at 10% and your income is stable, entering the market and paying LMI might make more sense than waiting and risking being priced out of your preferred area. A mortgage broker in Richmond can model both scenarios with current data to show which path leaves you in a stronger position over a five or ten-year period.

Getting Pre-Approval Before You Start Looking

Pre-approval confirms how much a lender is willing to let you borrow based on your income, expenses, and deposit. It's not a guarantee, because the lender still needs to assess the specific property and confirm your circumstances haven't changed, but it gives you a clear budget and shows sellers you're a serious buyer.

For Richmond buyers, particularly those looking at apartments in newer developments or older converted warehouses, pre-approval also identifies potential issues early. Some lenders have restrictions on high-rise buildings, properties with certain cladding types, or apartments in developments with a high proportion of investor ownership. Knowing your lender's position before you make an offer avoids the disappointment of finding the right property only to discover your finance won't be approved.

The pre-approval process typically takes a few days once you've provided payslips, tax returns, bank statements, and details of your deposit. Lenders will also review your credit history and existing liabilities. If anything appears that might affect your application, such as missed payments or high credit card limits, you'll have time to address it before you're under contract. You can start this process by seeking home loan pre-approval to understand your borrowing capacity and refine your property search accordingly.

Call one of our team or book an appointment at a time that works for you. We'll review your deposit position, calculate your borrowing capacity, and identify which lenders and products suit your circumstances so you can move forward with clarity.

Frequently Asked Questions