The deposit is the portion of a purchase price contributed by the buyer. The balance is generally funded by a home loan, subject to lender assessment, valuation and loan-to-value ratio. The right deposit position depends on the property, borrower and lender policy.
Deposit percentage and LVR
A deposit percentage is often discussed alongside loan-to-value ratio, or LVR. A larger deposit may reduce the loan amount and can affect lender options, but there is no single minimum deposit that applies to every borrower or property.
Some borrowers use a smaller cash contribution and consider LMI, while others use a guarantor structure or additional security. Each option has costs, conditions and risks.
Genuine savings, gifts and guarantees
Some lenders ask for evidence of genuine savings, which may include a period of holding savings or other acceptable funds. Policy varies. A gifted deposit may require a signed gift declaration and evidence that it is not repayable. A guarantor may support part of the security position but does not remove the borrower’s serviceability requirements.
Keep a clear record of where the funds came from and avoid moving money between accounts without retaining evidence.
Deposit versus total upfront funds
Budget for more than the contract deposit. Depending on the state or territory, transaction and transfer duty may apply, along with conveyancing, inspections, lender and valuation fees, insurance, moving costs and a cash buffer. Current concessions and first-home-buyer schemes depend on rules that can change.
The amount needed to complete is therefore the deposit plus relevant purchase costs, less any confirmed concessions or credits. Confirm the figures with the conveyancer, lender and relevant government authority.
Prepare before seeking pre-approval
- Estimate the purchase price and likely upfront costs.
- Identify savings, gifts, equity or other acceptable funds.
- Review income, expenses and existing liabilities.
- Consider the effect of LMI or a guarantor structure.
- Keep sufficient funds available after settlement.
A pre-approval review can help identify document requirements, but it does not guarantee approval for a particular property.
Common mistakes
- Assuming the deposit is the only cash required.
- Using borrowed funds without explaining them.
- Forgetting valuation differences can change the required contribution.
- Committing the full cash reserve and leaving no contingency.
Continue with the first home buyer guide or borrowing capacity guide, then book a consultation.