Saving a full 20% deposit while paying rent is genuinely difficult for most Australians. The good news is that buying with less than 20% is possible — but it comes with costs and risks that are worth understanding clearly before committing.
When you borrow more than 80% of a property's value (LVR above 80%), the lender requires Lenders Mortgage Insurance (LMI). LMI protects the lender — not you — if you default and the property sale does not cover the outstanding loan. You pay the premium, but the cover is entirely for the lender's benefit.
LMI premiums are calculated as a percentage of the loan amount and vary by insurer (Helia, QBE LMI), lender, loan type, and LVR. Approximate premiums as a percentage of loan:
| LVR | Deposit on $700K | LMI (approx.) |
|---|---|---|
| 85% (15% deposit) | $105,000 | $5,000–$8,000 |
| 90% (10% deposit) | $70,000 | $10,000–$15,000 |
| 95% (5% deposit) | $35,000 | $22,000–$28,000 |
LMI can be paid upfront or capitalised into the loan (added to the loan balance). Capitalising it means you pay interest on the LMI premium for the full loan term — a $25,000 LMI premium at 6.5% over 30 years costs approximately $57,000 in total when capitalised.
Use the LMI calculator: Get an accurate LMI estimate for your specific property price and deposit at the LMI Estimator.
The Federal Government's First Home Guarantee (FHBG), administered by Housing Australia, allows eligible first home buyers to purchase with a 5% deposit without paying LMI. The government guarantees up to 15% of the purchase price, meaning the lender is protected as if it were an 80% LVR loan.
Key eligibility conditions for 2025–26:
A family guarantee allows a parent or close relative to pledge equity in their own property to supplement your deposit. Done correctly, this allows you to borrow at 80% LVR against your property with no LMI, because the lender holds security over both properties. See the Guarantor Home Loans guide for the full process.
Several states operate shared equity schemes where the government co-purchases a portion of the property, reducing the loan size you need:
Shared equity schemes reduce your mortgage but also reduce the equity growth you capture as the property appreciates. They are designed for buyers who cannot access the market any other way.
Buying at 90–95% LVR means you have very little buffer before you owe more than the property is worth. If property values fall 10% and you borrowed at 90% LVR, your LVR is now approximately 100% — meaning the sale of the property would not cover the mortgage. This is called negative equity.
Negative equity is not an automatic crisis if you can continue making repayments and do not need to sell. But if your circumstances change (job loss, relationship breakdown, health issue), being in negative equity significantly restricts your options. A larger deposit provides meaningful downside protection.
Avoid stretching beyond 95% LVR. Some lenders will lend at 97% LVR (capitalised LMI). The effective protection this provides is minimal while the risk of negative equity is substantial. If you need to buy at this LVR, the First Home Guarantee is a far better path.