

How much do I need for a house deposit in Melbourne?
Buying a home in Melbourne can be both exciting and challenging. House deposits are one of the biggest hurdles for most first- home buyers, and they can vary depending on the property, the lender, and your personal financial situation. With Melbourne's housing market constantly evolving, having the right deposit could mean the difference between securing your dream home or missing out.
This is where mortgage brokers come in handy, helping you navigate loan options and lending criteria.
In this guide, we'll break down how much deposit you need for a home loan in Melbourne and how to get started.
What is the minimum deposit for a home loan in Melbourne?
The minimum deposit for a home loan in Melbourne typically ranges from 5% to 20% of the property value, depending on the lender and loan type. If you're aiming for a 20% deposit, you can avoid paying lenders mortgage insurance (LMI) - a cost designed to protect the lender if you cannot meet your loan repayments.
However, if your deposit is less than 20%, in many cases most lenders will require you to pay LMI, which can add a significant amount to your overall loan costs.
For example, a 5% deposit on a $600,000 home would only be $30,000, but you’ll likely need to budget for LMI on top of that, which could add anywhere from $10,000 to $25,000 to your loan, depending on the lender.
Factors like loan type, your credit score and the specific property value can also influence your minimum deposit requirements and whether LMI will apply.
Examples of deposit amounts
Here’s a breakdown of the minimum deposit you’d need for homes of different values, both with and without LMI:
Property Value | 20% Deposit (No LMI)
$700,000 | $140,000
$600,000 | $120,000
$500,000 | $100,000
$400,000 | $80,000
Property Value | 5% Deposit (with LMI)
$700,000 | $35,000 + LMI
$600,000 | $30,000 + LMI
$500,000 | $25,000 + LMI
$400,000 | $20,000 + LMI
$300,000 | $15,000 + LMI
As you can see, while a 5% deposit may seem more accessible, factoring in LMI makes a significant difference. Opting for a 20% deposit eliminates these additional costs and can also lead to lower monthly repayments. But in some cases, it can be worth your while to pay LMI to help you get into the market sooner.
If you're unsure how much deposit you need for your dream home in Melbourne or how LMI could affect your loan, reach out to your local mortgage broker for expert advice. We're happy to guide you through the process.
While the minimum deposit for a home loan in Melbourne typically ranges from 5% to 20% of the property value, another key factor that influences your required deposit is the loan-to-value ratio (LVR). Understanding the relationship between your deposit and LVR is crucial when determining the overall cost of your loan.
What is loan-to-value ratio (LVR)?
The Loan-to-Value Ratio (LVR) is the percentage that compares the amount you’re borrowing to the property value. It’s calculated by dividing your loan amount by the property’s value and multiplying by 100.
(Loan Amount ÷ Property Value) × 100
For example, if your loan amount is $400,000 and the property value is $500,000, the LVR would be: ($400,000 ÷ $500,000) × 100 = 80%.
The difference between minimum deposit and LVR
While the minimum deposit focuses on the amount you need upfront (usually 5% to 20% of the property value), the LVR looks at the ratio of your loan to the property’s worth. These two factors are closely related but serve different purposes:
- Minimum deposit: This is the actual cash you need to put down when purchasing a property. The larger the deposit, the lower your loan amount will be.
- LVR: Lenders use the LVR to assess the risk of the loan. A lower LVR (meaning a larger deposit) usually results in more favourable loan terms, such as lower interest rates and avoiding LMI.
How LVR affects deposit size
A lower LVR (80% or less) means you’ll need a larger deposit, but it can help you avoid paying LMI and give you access to more competitive loan conditions. This is an ideal scenario for many buyers, as it reduces both upfront and ongoing costs.
If your LVR is above 80%, meaning your deposit is less than 20%, you’ll face extra costs like LMI, which can add thousands to your total loan. Lenders see higher LVR loans as riskier, and you may also face higher interest rates or stricter lending criteria.
Who decides how much deposit for a home loan is required?
The amount of deposit you need for a home loan is determined by a combination of factors, mainly driven by the lender’s criteria and your personal financial situation. Here's a breakdown of who and what influences the required deposit:
1. Lenders: Banks and financial institutions set the minimum deposit requirements based on their risk assessment. Most Australian lenders typically require a deposit of 20% of the property’s value to avoid LMI. However, they may offer low-deposit home loans with as little as 5% deposit - but this often comes with added costs like LMI and potentially higher interest rates.
3. Borrower’s Financial Situation: Your credit score, income stability, and overall credit history will also influence the required deposit. Borrowers with a strong financial profile may qualify for lower deposit loans, while those with less stable finances may be asked for a larger deposit to reduce the lender’s risk.
4. Government Schemes: If you're an eligible first-home buyer, government initiatives like the First Home Guarantee Scheme can reduce the amount of deposit you need. This may allow for a lower deposit while helping to avoid LMI. Eligibility criteria apply.
In the end, the lender has the final say on the deposit required, but your financial profile and eligibility for government assistance can influence the amount you’ll need to save and put up for deposit.
If you need help determining how much deposit you’ll need for your specific situation, our team can guide you through the options and help ensure you're prepared for your home loan application.
Beyond how much you need for a house deposit - additional costs to budget for
While saving for a cash deposit is a huge step toward buying a home, it’s only part of the picture.
Before you climb the property ladder, you’ll also need to prepare for a range of additional costs beyond your deposit. These expenses can catch first-home buyers off guard if they're not planned for. Here’s an example of additional costs you need to budget for:
- Stamp Duty: This is a government tax based on the property purchase price and can be one of the largest upfront costs. Stamp duty varies by state, so it's essential to check how much you'll need for your specific type of property and territory government tax obligations. Concessions do apply in Victoria for first-home buyers.
- Government Fees & Mortgage Registration Fees: When purchasing a home, you'll need to pay government fees such as mortgage registration fees and title search fees. These may seem small compared to the purchase price, but they add to your purchase costs and must be budgeted for.
- Settlement Costs: When finalising your property transaction, you'll encounter settlement costs. These can include legal fees, conveyancing fees, and sometimes even adjustments for council rates or utility bills. Planning for these potential upfront costs is key to avoiding surprises during the final stages of your purchase.
- Loan Application & Establishment Fees: Depending on the type of loan and the lenders you choose, there may be application or establishment fees. These fees cover the lender’s costs in setting up the loan and can vary widely between different loan types.
- Loan Repayments & Interest: Your ongoing loan repayments are influenced by several factors, including the variable interest rate, loan term, and type of loan.
- Insurance & Additional Security: Depending on the lender, you may need additional security such as home insurance. This is crucial in protecting both your home and your lender’s interests.
- Building and pest inspection: It is a good idea to arrange a building and pest inspection before your contract of sale is finalised so you don’t get any costly surprises.
Transitioning from just focusing on your deposit to understanding these additional costs is essential for first-home buyers. Establishing good saving habits with a clear savings goal can help you navigate these extra expenses more comfortably.
Frequently asked questions (FAQs)
How much deposit do you need for a house in Melbourne?
Knowing how much deposit you need for a house will give you a boost in your home-buying journey. You’ll typically need at least a 5% deposit, though a 20% deposit is ideal to avoid LMI.
What is lenders mortgage insurance (LMI)?
LMI protects the lender if you cannot meet your repayments. It’s generally required for deposits less than 20%.
Are there any grants available for first-home buyers?
Yes, the First Home Guarantee Scheme is available for eligible first-home buyers in Melbourne. There are also concessions on stamp duty available.
Can I use a gift for my home loan deposit?
Yes, many lenders accept gifts of money for deposits, but you’ll also need to demonstrate the ability to save.
How can I improve my chances of loan approval?
Having a good credit score, a solid savings plan and reducing debt can help.
Wrapping up
Buying a home in Melbourne is an exciting journey, and understanding the deposit you need is a big part of getting there. Whether you're saving for a 5% deposit or aiming for the full 20% to avoid LMI, having the right plan in place can make a huge difference.
By considering all the upfront costs, from stamp duty to settlement fees, you're already one step ahead.
If you're ready to take the next step or need more personalised advice, reach out to our team. We’re here to help you with all your home loan questions and guide you toward achieving your property goals.