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Minimum deposit for a home loan

Marty McDonald - Tuesday, May 24, 2011

What is the minimum deposit required for a home loan? This depends on a number of factors such as whether you are eligible for stamp duty concessions and the first home owner grant (FHOG)..

Minimum deposit required for a home loan (with no government grants or stamp duty exemptions).

There are quite a few lenders who will currently lend 95% of the purchase price or valuation of the property (which ever is lower) when you are purchasing a property. So that means a buyer needs to contribute the other 5% out of their own funds to complete the purchase.

There are also other costs associated with buying such as stamp duty and legal fees that must be covered by the buyer from their own funds. Without the assistance of any state or territory based stamp duty subsidies you should allow another 5% of the purchase price for all these costs.

Then there is the mortgage insurance cost. This is generally allowed to be added to the loan amount so in effect the borrower doesn't have to fund this cost from their own funds. However with a 95% home loan many lenders don't allow the end loan amount including the mortgage insurance to be more than 97% of the value of the property. This is a real pain because often the insurance is more than 2% of the loan amount! The net result is in many cases the maximum loan amount when taking into account the mortgage insurance will be slightly less than 95% say around 94%. See our dedicated lenders mortgage insurance (LMI) pages for more on lenders mortgage insurance.

Putting it all together the minimum deposit required for a home loan without any government assistance will generally be slightly more than 10% of the purchase price. 5% towards the property, 5% to cover the associated costs and a little bit more to cover the gap in mortgage insurance if applicable with your chosen lender.

Minimum deposit required for a home loan (with the First Home Owners Grant and stamp duty exemptions).

If you are a first home buyer and your partner has not owned before generally you will be eligible for the First Home Owners Grant (FHOG) and depending on the state where you are buying you may be also eligible for stamp duty concessions.

The minimum deposit needed for a home loan will be less if you are eligible for some government assistance. The absolute minimum deposit required can possibly be best outlined with an example.

Example of absolute minimum deposit (one mainstream lender only):

Say you are purchasing your first home in NSW for $500,000. Assuming you are eligible for both the stamp duty concessions and the FHOG you would not pay stamp duty at all and would also receive the $7000 grant.

One lender we have access to will allow the 5% deposit to be made up of your saved funds plus the FHOG. So in the below example the minimum deposit required could be as little as $21,000. 

+ $25,000 (5% required to contribute towards for the property)
+ $3000 (legal and incidental costs)
-  $7000 (FHOG)
= $21,000 minimum deposit required from your own funds.

Example normal minimum deposit required (most lenders):

Unfortunately most lenders even those who allow 95% loans don't allow the FHOG to be included as part of the 5% deposit required. So the $21,000 of your own funds using the example above would fall just short of the required $25,000 with most 95% home loan lenders. The FHOG could still be used to cover the associated costs and a small amount would be returned as part of the settlement or alternatively a slightly lower loan amount could be borrowed.

Genuine savings

Most lenders require that the 5% contribution towards the purchase price be genuine savings. As touched on above we have one lender who will allow the 5% to be made up from genuine savings as well the FHOG.

We also now have a range of alternatives to traditional genuine savings that I will cover in my next post. This includes non genuine savings deposits from gifts, guarantor loan options as well as using the rent you pay as proof of your savings / loan repayment ability. Link here:

What's next

If you are starting your journey towards purchasing a home and would like the assistance of an expert mortgage broker why not contact me directly here.

Want to explore our site a bit more? Start here.


Marty McDonald

About the Author: Marty McDonald is principal of mortgage broker “Mortgage Experts”. Marty specialises in assisting active property investors with loan structuring advice and implementation as well as helping credit worthy borrowers with slightly outside the box income and employment situations. Find Marty on  and LinkedIn.

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