The 20 percent deposit rule gets treated like an unbreakable law of home buying, and it’s simply not true anymore. I speak to buyers every week who’ve delayed even looking at property because they’ve been told, somewhere along the way, that they need to save a fifth of the purchase price before a bank will talk to them. So let’s go through every genuine option available for a low deposit home loan if your deposit sits below that 20 percent mark, what each one actually costs, and how to figure out which path suits your situation.
There’s nothing magic about the number 20. It simply marks the point where a lender’s risk drops enough that they’re comfortable lending without extra protection. Once you’re borrowing 80 percent or less of a property’s value, you generally won’t be asked to pay Lenders Mortgage Insurance (LMI). Borrow more than that, and most lenders will require it, because from their perspective there’s less of a buffer between what they’ve lent you and what the property is actually worth if things go wrong.
That doesn’t mean a deposit under 20 percent shuts the door on you. It just means you’ll be looking at one, or a combination, of the options below.
This is the most straightforward path, and for a lot of buyers, it’s still the right one. You put down as little as 5 to 10 percent, the lender approves the loan at a higher loan to value ratio, and you pay a one off LMI premium to cover the additional risk. LMI protects the lender, not you, if you default, but it’s also the exact mechanism that makes lending at a higher LVR possible in the first place.
The premium itself scales with your deposit size and loan amount, and it isn’t linear. Moving from a 90 percent LVR to an 85 percent LVR can drop your premium by more than the 5 percent gap suggests, because insurers price in bands rather than a flat percentage. Most lenders will let you capitalise the premium into your loan rather than paying it as cash upfront, though keep in mind you’ll then pay interest on it for as long as it sits on your loan.
This is the option that’s changed the most in the last year, and it’s worth understanding properly because it can eliminate LMI entirely rather than just help you access a loan at a higher LVR. Housing Australia’s First Home Guarantee allows eligible first home buyers to purchase with a deposit as low as 5 percent, with the government guaranteeing a portion of the loan value directly to the lender, which means the lender treats it as if you already have a 20 percent deposit. No LMI applies at all.
The scheme was significantly expanded from 1 October 2025, removing the income limits and annual place caps that previously restricted access, and property price caps were increased across the country to better reflect current property values. It’s genuinely a different scheme to the one that existed just a couple of years ago, so if you looked into it previously and were told you weren’t eligible, it’s worth checking again.
There’s also the Family Home Guarantee, aimed at eligible single parents or legal guardians, which can bring the required deposit down to as little as 2 percent. Eligibility for any of these schemes depends on things like whether you’ve owned property before, your residency status, and the price of the property against the cap for your area, so it’s worth having your specific situation checked properly rather than assuming you do or don’t qualify based on general information.
If a parent or close family member is willing to use equity in their own property as additional security, a guarantor arrangement can bring your effective loan to value ratio below 80 percent without you needing to save a larger cash deposit at all. In practice, this means you might only need a genuine savings deposit of 5 to 10 percent, with the guarantor’s equity covering the rest of the gap that would otherwise trigger LMI.
This isn’t a decision anyone should make lightly, on either side of the arrangement. The guarantor is taking on real risk, since their property is used as security, and if repayments were ever missed, that risk becomes very real for them too. I always recommend independent legal advice for the guarantor before this kind of arrangement goes ahead, and a proper conversation between both parties about what happens down the track, including how and when the guarantor’s obligation can eventually be released once enough equity has built up.
Some lenders offer LMI waivers to certain professionals, most commonly doctors, dentists, vets, lawyers, accountants, and a handful of other professions, sometimes at LVRs as high as 90 to 95 percent. The logic from a lender’s perspective is that these professions tend to have strong, stable, and often rising income, which lowers the perceived risk even without a full deposit.
Eligibility and which professions qualify varies significantly from lender to lender, and it’s not something every bank advertises clearly, so this is genuinely one of those areas where comparing across a broad panel of lenders can uncover an option you wouldn’t have found by walking into a single branch.
This isn’t a separate loan type so much as a strategic timing decision, but it’s one I raise with almost every client sitting close to a threshold. Because LMI pricing moves in bands based on your LVR, saving even a modest amount extra to shift from a 95 percent LVR into a 90 percent band, or from 90 percent into 85 percent, can reduce your premium by significantly more than the extra deposit itself. Sometimes waiting an extra few months to hit the next band is worth more than jumping in at the earliest possible moment.
Here’s something worth being clear about. A smaller deposit does not mean a smaller or easier income assessment. Lenders still look at your income, your expenses, your existing debts, and your credit history in exactly the same way they would for any home loan application, regardless of which low deposit pathway you’re using. A low deposit home loan is not a shortcut around responsible lending obligations, it’s simply a different way of structuring the security side of the loan.
I get asked constantly which of these is “the best” option, and honestly, it depends entirely on your situation. If you’re an eligible first home buyer under the property price caps for your area, the government guarantee scheme is usually the strongest option, since it removes LMI altogether without needing a guarantor. If you’re not eligible for the scheme, perhaps because you’re purchasing an investment property or you’ve owned before, but you have a family member willing and able to help, a guarantor loan can achieve a similar outcome. If neither applies, paying LMI on a standard low deposit home loan is still a completely reasonable way to get into the market sooner rather than waiting years to save the extra ten or fifteen percent, particularly in a market where property prices are rising faster than most people can save.
FAQs
Generally no, these are treated as separate pathways, since the guarantee scheme is specifically designed to remove the need for additional security like a guarantor. Your broker can confirm which single pathway best suits your circumstances.
No, but lenders will look at your credit history more closely the smaller your deposit is, since there's less buffer if something goes wrong. A clean recent repayment history matters more than a perfect score.
It means you're starting with less equity in the property, which can matter if property values fall in the short term. It's worth discussing your specific market and timeline before deciding how small a deposit makes sense for you.
Yes, standard low deposit lending with LMI is available for investment purchases, though most government guarantee schemes are restricted to owner occupiers only.
It's usually a quick check once we have a clear picture of your income, savings, and target property price and location, though final confirmation depends on formal loan approval and available guarantee allocation through your chosen lender.
It can narrow the field somewhat, since not every lender offers every low deposit pathway, which is exactly why comparing across a broad panel rather than a single bank tends to produce a better outcome.
If you’re trying to work out which of these paths actually fits your situation, that’s exactly what I help buyers untangle every day. Take a look at our Low Deposit Home Loans page for more detail, and if this is your first purchase, our First Home Buyer Loans page is worth a read too.
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