If there’s one topic that confuses home buyers time and time again, it’s the deposit. How much deposit do you really need? Where does the deposit go? And what’s the difference between a property deposit and a home loan deposit?
At Base Home Loans, we get these questions every week, so we’ve broken it down further here to hopefully make it easier to understand.
What Is a Home Loan Deposit?
Your home loan deposit is the amount of money you contribute upfront toward the purchase price of your home. It’s your share of the property, while the bank lends you the rest.
Example: If you’re buying a $600,000 home and have $60,000 saved, your deposit is 10%. The bank then lends you the remaining $540,000.
The size of your deposit matters because it affects:
- How much you can borrow
- Whether you’ll need to pay Lenders Mortgage Insurance (LMI)
- The range of lenders and products available to you
How Much Deposit Do You Need?
Traditionally, banks like to see a 20% deposit. It shows you have a solid savings history and lowers their risk. But the good news is, you don’t always need that much.
Here’s a quick guide:
| Deposit Size | What It Means | Pros | Cons |
|---|---|---|---|
| 20% | The “ideal” deposit | No LMI, stronger application | Takes longer to save |
| 10% | Common for many borrowers | Get into the market sooner | You’ll usually pay LMI |
| 5% | Minimum for most lenders | Eligible for First Home Guarantee scheme | Higher LMI, tighter assessment |
| 2% (or less) | For government-backed or specialist loans | Helps low-deposit buyers | Only available to eligible applicants |
In WA, products like Keystart and the Home Guarantee Scheme can make low-deposit options possible, even for first-home buyers who haven’t saved a full 20%.
Property Deposit vs Home Loan Deposit — What’s the Difference?
This is where most buyers get tripped up. The property deposit (sometimes called a holding deposit) is not the same as your home loan deposit.
Property Deposit (Holding Deposit)
- Paid to the real estate agent when you make an offer
- Acts as a sign of good faith and shows you’re serious about buying
- Usually a small amount (around $1,000 to 5% of the purchase price)
- Held in trust until settlement (when it will be dispersed).
If the sale falls through under finance or other conditions, it’s typically refunded.
Home Loan Deposit
- Your total contribution toward the property purchase
- Verified by your lender as part of the loan application
- Usually 5–20% of the purchase price
- Can include genuine savings, grants, or gifted funds (depending on lender policy)
How They Work Together
The property deposit you pay early on counts toward your total home loan deposit at settlement, but they’re not identical.
Example:
- Purchase price: $600,000
- Property deposit paid to agent: $10,000
- Total home loan deposit required: $60,000 (10%)
- Amount still needed before settlement: $50,000
So, your $10,000 property deposit is part of your full $60,000 home loan deposit — not an extra amount.
Deposits First Home Buyers
If you’re buying your first home, you’re in a unique position and the deposit conversation looks a little different for you.
Many first homebuyers assume they must save 20% before applying for a loan. The truth is, you may be able to buy with as little as 2–5%, depending on your circumstances and eligibility.
Here are a few key options designed to help first-timers get into the market sooner:
- Home Guarantee Scheme (HGS): Allows eligible first home buyers to purchase with as little as a 5% deposit and no LMI. The government guarantees up to 15% of the loan.
- First Home Owner Grant (FHOG): Available for newly built homes in WA, can help cover part of your upfront costs.
- Keystart Loans (WA only): Offer low-deposit home loans with flexible criteria (some as low as 2% deposit).
- First Home Super Saver Scheme (FHSSS): Lets you save your deposit faster by using your super account for tax-effective savings.
These schemes can be combined in certain cases, and eligibility rules can change from year to year. This is why it’s smart to talk to a Perth mortgage broker who knows the current guidelines for Western Australia, as well as the federal scheme.
Deposit Options for Investors and Next Home Buyers
If you’re buying an investment property or upgrading to your next home, your deposit strategy might look different from a first home buyer’s. While you won’t have access to grants or government-backed schemes, you may have more ways to leverage your existing assets.
- Using Equity from an Existing Property
This is by far the most popular approach for investors and upgraders.
If your current home has increased in value, you can tap into that equity as your deposit for your next purchase.
Example:
If your home is worth $800,000 and your remaining loan is $500,000, you have $300,000 in equity. Most lenders allow you to borrow up to 80% of the property’s value ($640,000 in this case), giving you access to $140,000 to use as a deposit or for costs on your new purchase.
Many Perth homeowners have seen strong equity growth in the past 12 months, making this a powerful way to invest without dipping into cash savings.
- Cash or Savings
If you’ve built up savings or sold a previous property, that cash can go straight toward your new purchase. For investment loans, most lenders require at least a 10–20% deposit (depending on your income and the property type).
Some banks may ask for:
- A larger deposit (20–30%) for high-density apartments, regional properties, or certain postcodes
- Genuine savings evidence if your deposit comes from cash rather than equity
- Cross-Collateralisation (Linking Properties)
This strategy uses the value of one property to secure another without selling or using cash.
In simple terms: You use your existing property as part of the security for your new investment property.
While convenient, it does mean both properties become linked under one loan security, so if you sell one, you may need to partially repay or restructure the loan.
Cross-collateralisation can be effective, but it’s not right for everyone. A broker can help you assess the risks and explore alternative loan structures.
- Using a Guarantor
Even though this is more common for first home buyers, it can also help investors or second-home buyers who want to preserve cash flow. A guarantor (usually a parent) offers part of their property’s equity as additional security, potentially allowing you to borrow up to 100% of the purchase price without paying LMI. - Refinancing for a New Deposit
If your circumstances have improved, say your income has increased or you’ve paid down your existing loan, you may be able to refinance your current mortgage to release funds for a deposit on a new purchase.
This option works well for:
- Homeowners upgrading to a larger property
- Those wanting to diversify into investment properties
- Borrowers taking advantage of increased property values
Deposit Requirements for Investors (at a Glance)
| Property Type | Typical Deposit | Notes |
|---|---|---|
| Owner-occupied (upgrader) | 10–20% | 5% may be possible with strong income and LMI |
| Investment property | 10–20% | Higher risk = higher deposit required |
| High-density apartment or regional area | 20–30% | Lenders often require a larger deposit |
| Equity release (refinance) | Varies | Can reduce or replace cash deposit |
Smart Tip for Investors
If you’re considering using equity to fund a deposit, it’s crucial to understand your loan-to-value ratio (LVR) and borrowing capacity. An experienced broker can help you map out the safest approach.
What Counts Toward Your Deposit?
Different lenders have different rules, but most will accept:
- Genuine savings (funds saved over time)
- Gifts from family, with a signed statutory declaration
- Equity in another property (for upgraders/refinancers)
- First Home Super Saver Scheme withdrawals
- Government assistance (like the Home Guarantee Scheme or Keystart loans)
Grants such as the First Home Owner Grant can help with costs, but may not always be counted as genuine savings — your broker can clarify how your lender views it.
Other Costs to Factor In when buying a home
Your deposit isn’t the only upfront cost when buying a home. Make sure to budget for:
- Stamp duty (or apply for available concessions)
- Settlement agent/legal fees
- Building and pest inspections
- Lenders Mortgage Insurance (if applicable)
- Moving costs and initial maintenance/renovations
A good rule of thumb: set aside 3–5% of the property price for these extras.
Common Deposit Myths (and the Truth)
| Myth | Truth |
|---|---|
| “You need 20% or you can’t buy a home.” | False — some buyers get in with as little as 2%. |
| “LMI protects me as the borrower.” | No — it protects the lender if you default. |
| “My property deposit covers everything.” | Not quite — your lender still needs to see your full home loan deposit and |
| “Government grants count as savings.” | They can help, but lenders often assess your genuine savings separately. |
Summary
- Your home loan deposit is your total contribution toward the property, usually 5–20%.
- Your property deposit is a smaller upfront payment to secure the home.
- The property deposit forms part of your overall deposit but doesn’t replace it.
- First home buyers may qualify for lower deposit schemes and grants.
- Investors and next home buyers can often use equity to fund their deposit.
- You don’t always need 20% — a broker can help you find the right path.
Need Help Figuring Out Your Deposit?
If you’re unsure how much deposit you really need, or where your savings and equity fit in — don’t stress. You’re not alone, and this is what we help clients with every day.
Get in touch with Perth Mortgage Broker, Base Home Loans today for a in-depth conversation of your home loan requirements.
We’ll show you what’s possible based on your deposit, goals, and eligibility, and help you take that first confident step toward your new home or investment property.
Disclaimer: The information provided on this blog is for general informational purposes only and does not constitute financial or professional advice. While we strive to provide accurate and up-to-date information, mortgage laws and regulations can change, and individual circumstances may vary. We recommend consulting with a qualified financial advisor or mortgage broker to assess your specific situation and needs. Base Home Loans is not responsible for any actions taken based on the content of this blog. Always conduct your own research and consider seeking professional advice before making financial decisions.
