The Truth About Deposits in 2025
If you're planning to buy your first home in 2025, you've probably heard that you need a 20% deposit. But is that really true?
The reality is much more nuanced. You can actually buy with as little as 5%, but there are hidden costs and strategies you need to know. Let's break down the real deposit requirements, uncover the hidden costs that catch first-time buyers off guard, and share practical strategies that can help you get into your first home sooner than you think.
Key Takeaways
- • You can buy with as little as 5% deposit (with LMI)
- • 20% deposit avoids LMI costs and gets better rates
- • First home buyer grants can reduce your deposit needs
- • Additional costs can add 3-5% to your total purchase
Understanding Deposit Requirements
The deposit you need depends on several factors, but let's start with the basics. You can technically buy with as little as 5% deposit, but this comes with significant costs and restrictions. Let's look at how different deposit sizes affect your purchase using a $600,000 property as an example (calculations based on 5.75% interest rate over 30 years).
$600,000 Property Example
5% Deposit
$30,000- Loan: $570,000
- Monthly: $3,325
- LMI: $15,000-$25,000
- Higher rates likely
10% Deposit
$60,000- Loan: $540,000
- Monthly: $3,150
- LMI: $8,000-$15,000
- Moderate rates
20% Deposit
$120,000- Loan: $480,000
- Monthly: $2,800
- LMI: None
- Best rates available
As you can see, the difference between a 5% and 20% deposit is substantial. While you can technically buy with just $30,000, you'll pay significantly more in the long run through higher interest rates and LMI costs. The sweet spot for most first-time buyers is somewhere between 10-15%, which gives you a good balance of affordability and cost-effectiveness.
These calculations are estimates only. Your actual repayments may be higher as many lenders charge higher interest rates for low deposit loans. Always check with your lender for exact figures.
The Hidden Costs of Buying
Your deposit is just the beginning. When budgeting for your first home, you need to account for a range of additional costs that can add 3-5% to your total purchase price. Let's break down what you'll actually need to pay.
Pre-Purchase Costs
- • Building and pest inspection ($400-$800)
- • Strata report (if applicable) ($200-$300)
- • Property valuation ($300-$500)
Settlement Costs
- • Conveyancing ($1,500-$3,000)
- • Mortgage registration ($200-$300)
- • Transfer fee (varies by state)
- • Title search ($30-$50)
- • Stamp duty (varies by state and price)
After Settlement
- • Moving costs ($500-$3,000)
- • Council rates (quarterly)
- • Home insurance ($1,000-$2,000/year)
- • Repairs/maintenance buffer ($5,000+)
These costs can catch first-time buyers off guard. For a $600,000 property, you might need an additional $10,000-$15,000 just for these expenses (with stamp duty being the biggest variable cost). This is why it's crucial to build a buffer beyond your deposit amount.
Proving Your Deposit is Genuine
Having the money isn't enough - banks need to verify that your deposit comes from legitimate sources. This is where many first-time buyers get caught out, especially if they've received money from family or have been saving in unusual ways.
Banks generally want to see consistent savings over 3 months from legitimate sources
What Banks Accept
- • Regular salary deposits into savings account
- • Term deposit statements
- • Shares or managed funds statements
- • First Home Super Saver Scheme
- • Sale of assets (with documentation)
- • Gift from family (with proper declaration)
- • Inheritance (with documentation)
Required Documentation
- • 3-6 months bank statements
- • Proof of regular savings pattern
- • Gift declaration (if applicable)
- • Source of funds declaration
- • Payslips or income evidence
If you're receiving money from family, make sure to get proper documentation and declare it as a gift. Don't try to hide the source of your funds - transparency is key to a smooth approval process.
Government Schemes and Price Caps
In 2025, various government schemes can help reduce your deposit requirements, but they come with strict price caps. Understanding these limits is crucial for your planning.
These caps affect your access to grants, schemes, and stamp duty concessions
Melbourne & Major Regional Centres (2025)
Metro
$800,000
Regional
$650,000
These caps determine your eligibility for schemes like the First Home Guarantee, which allows you to buy with just a 5% deposit without paying LMI. However, if your target property exceeds these caps, you'll need to either save a larger deposit or look at properties within the price limits.
Planning Your Savings Journey
Once you understand your target deposit amount, you need to create a realistic timeline for reaching your goal. This involves understanding your current financial situation and making realistic projections about your saving capacity.
Example: Planning for a $600,000 Property
Target Property: $600,000
Desired Deposit: 20% ($120,000)
Current Savings: $20,000
Monthly Savings Capacity: $2,500
Timeline to Goal:
$120,000 - $20,000 = $100,000 needed
$100,000 ÷ $2,500 = 40 months (3.3 years)
Good news: This timeline will likely be faster in reality! As your salary increases over time and you earn interest on your savings, your monthly savings capacity will grow, potentially reducing your timeline by 6-12 months.
This timeline assumes property prices stay relatively stable. In reality, you should monitor market trends in your target areas. If prices are rising faster than your savings rate, you might need to adjust your strategy or target different areas.
How Dwella Helps You Plan
- • Track if property prices are rising faster than your savings
- • Monitor price trends in your target areas
- • Adjust your savings goals based on market changes
Alternative Paths to Homeownership
If saving a traditional deposit seems impossible, there are several alternative paths to consider. Each comes with its own risks and benefits, so it's important to understand what you're getting into.
Family Guarantee
This involves parents using their property as additional security for your loan. It can reduce or eliminate your deposit requirement entirely.
Pros
- • Lower deposit requirement
- • No LMI costs
- • Faster path to homeownership
Cons
- • Parents' property at risk
- • Family relationship strain
- • Limited lender options
Government Schemes
Various government programs can help reduce your deposit requirements, but they come with strict eligibility criteria.
- • First Home Guarantee: 5% deposit, no LMI
- • Regional First Home Buyer Guarantee: For regional areas
- • State-specific schemes: Vary by location
Using Equity
If you already own property or have access to equity, you might be able to use it as your deposit.
- • Borrowing against existing property
- • Investment property equity
- • Cross-collateralization (higher risk)
Proven Strategies to Boost Your Savings
Saving for a deposit requires discipline and strategy. Here are some proven approaches that have helped thousands of first-time buyers reach their goals.
The 50/30/20 Rule
This simple budgeting framework can help you allocate your income effectively:
Needs (rent, utilities, food)
Wants (entertainment, shopping)
Savings (deposit)
Maximizing Your Returns
Make your money work harder while you save:
- • High-interest savings accounts: Look for accounts offering 4%+ interest
- • Term deposits: For lump sums you won't need immediately
- • First Home Super Saver Scheme: Tax benefits for voluntary contributions
- • Bonus interest accounts: Meet monthly criteria for higher rates
Lifestyle Adjustments
Sometimes the fastest path to your deposit involves temporary lifestyle changes:
- • Moving back with parents: Can save $15,000-$30,000 annually
- • Share housing: Reduce rent costs by 30-50%
- • Side hustles: Freelancing, gig economy, or part-time work
- • Reducing subscriptions: Audit and cancel unnecessary services
- • Meal planning: Can save $200-$500 monthly on food
- • Public transport: Save on car costs and fuel
Smart Banking Habits
Set up systems that make saving automatic and effortless:
- • Automatic transfers: Move money to savings on payday
- • Separate savings account: Keep it out of sight, out of mind
- • Round-up features: Save spare change automatically
- • Cash back programs: Earn while you spend
- • Multiple accounts: Separate emergency fund from deposit savings
Are You Ready to Apply?
Before you start applying for home loans, use this checklist to ensure you're fully prepared. Missing any of these items can delay or derail your application.
Use this checklist before applying for a home loan
Before Applying:
- Saved minimum deposit
- Evidence of genuine savings (3 months)
- Last 3 months' bank statements
- Proof of income
- Credit score checked
- Pre-approval research done
- Additional costs buffer saved
- Government scheme eligibility checked
- Property price research completed
- Suburb research completed
Common Mistakes to Avoid
Many first-time buyers make avoidable mistakes that can cost them time, money, or even their chance at homeownership. Learn from others' experiences to avoid these pitfalls.
- Not factoring in all costs: Only looking at the deposit, not the total cost of buying
- Relying on rental income: Assuming you can rent out rooms to help with repayments
- Not checking scheme eligibility: Missing out on government assistance
- Forgetting about genuine savings requirements: Not having proper documentation
- Not researching area growth rates: Buying in areas that don't appreciate
- Miscalculating stamp duty: Not accounting for state-specific costs
- Not having a buffer for rate rises: Assuming rates will stay low forever
- Forgetting about property maintenance costs: Not budgeting for ongoing expenses
- Not comparing lender requirements: Assuming all banks have the same criteria
- Rushing to buy without proper research: Making emotional decisions
- Only looking at properties once you have your deposit: Missing market opportunities
How Dwella Helps You Plan Your Deposit Journey
While you're saving for your deposit, Dwella can help you stay informed about the market and make better decisions about when and where to buy. Here's how our platform supports your journey to homeownership.
Research Tools
- • Track property price trends
- • Compare similar properties
- • Monitor market changes
- • Save properties of interest
- • Note inspection details
- • Upload and save photos
Price Tracking
- • Historical price data
- • Recent sales in the area
- • Price change alerts
- • Suburb price trends
Planning Features
- • Deposit goal setting
- • Timeline tracking
- • Property shortlisting
- • Inspection scheduling
- • Document storage
By tracking properties and market trends while you save, you'll be better positioned to make informed decisions when you're ready to buy. You'll understand which areas are appreciating faster than your savings rate and can adjust your strategy accordingly.
The Bottom Line
While you can technically buy with a 5% deposit, a larger deposit (15-20%) will give you significant advantages in terms of cost savings and loan approval chances. The key is finding the right balance between getting into the market quickly and minimizing your long-term costs.
Benefits of a Larger Deposit:
- • Better interest rates
- • Lower monthly repayments
- • No LMI costs
- • More borrowing power
- • Better loan approval chances
- • More lender options
Once you have your deposit sorted, you can use Dwella to track properties in your target areas and understand market trends. This will help you make informed decisions once you're ready to make offers and ensure you're buying at the right time in the right place.