Understanding the Basics of Home Loan Deposits

How Much Deposit Do You Actually Need for a Home Loan?

Most lenders ask for a deposit of at least 20% of the property value to avoid paying Lenders Mortgage Insurance, though borrowers can still get approved with as little as 5% if they meet serviceability requirements and cover the LMI premium.

After 16 years broking for self-employed clients, the deposit question comes up in almost every initial conversation. The figure itself is only part of the story. Where the money comes from, how long you've held it, and whether it's truly yours to use all matter when a lender assesses your application. A business owner with $80,000 sitting in a trading account might assume that's enough for a 10% deposit on an investment property, only to find out the lender wants to see those funds separated from operating cash for at least three months. We regularly see this catch applicants off guard, particularly when they're trying to move quickly on a property.

The 20% threshold exists because lenders treat any loan above 80% LVR as higher risk. When you borrow more than 80% of the property value, you'll pay LMI to cover that risk. The premium gets added to your loan or paid upfront, and it can run anywhere from a few thousand dollars to over $30,000 depending on your loan amount and LVR. That cost doesn't reduce your loan balance or build equity. It's purely a risk transfer from the lender to the insurer.

What Counts as Genuine Savings for a Lender

Genuine savings are funds you've accumulated over time and held in your own name for at least three months, demonstrated through bank statements or investment account records.

Lenders want to see a pattern of saving behaviour, not a one-off cash injection from a recent business sale or a gift that appeared in your account last week. For a self-employed applicant, that can get complicated. You might take a low salary and leave profits in the business, or you might draw irregular distributions depending on cashflow. A salaried employee saving $2,000 a month shows up clearly on a transaction list. A sole trader moving $15,000 from a business account to a personal offset account after a strong quarter doesn't always get the same treatment.

Some lenders accept equity in another property as a substitute for cash savings, particularly if you're refinancing or purchasing an investment property while holding an owner-occupied home. Others will accept a combination of savings, equity, and first home buyer schemes to get you over the line. In South Australia, you can access a full stamp duty exemption on new homes with no property value cap if you meet the eligibility criteria from 6 June 2024 onward, which can reduce the upfront cash you need at settlement even if it doesn't change the deposit itself.

Using the Australian Government 5% Deposit Scheme

The Australian Government 5% Deposit Scheme lets eligible first home buyers purchase with a 5% deposit, backed by a government guarantee of up to 15% of the property value, removing the need to pay LMI.

There's no income cap under this scheme, which makes it accessible to higher-earning self-employed buyers who might otherwise struggle to save a 20% deposit while managing business obligations. In South Australia, the price cap sits at $900,000 for Adelaide and regional centres, and $500,000 for other areas. Both the purchase price and the lender's valuation need to fall at or below that cap for the property to qualify.

Applications go through participating lenders, not directly to Housing Australia. Not every lender on the panel has the same appetite for self-employed borrowers, and some will ask for two full years of tax returns plus business financials even when a PAYG applicant might get approved with less documentation. If you're a contractor with an ABN or a company director taking a mix of salary and dividends, expect the serviceability assessment to dig into your business structure, not just your deposit size.

How Lenders Mortgage Insurance Affects Your Borrowing Capacity

LMI premiums are calculated on a sliding scale based on your loan amount and LVR, and the cost is either capitalised into your loan or paid upfront at settlement.

When the premium gets added to your loan, it increases the total amount you're borrowing, which can reduce how much the lender is willing to approve under their borrowing capacity calculations. Consider a scenario where you're purchasing at an 85% LVR and the LMI premium comes in at $12,000. That $12,000 gets added to your loan balance, pushing your LVR slightly higher and increasing your monthly repayment by around $70 to $80 depending on the interest rate. For a self-employed borrower already sitting close to the lender's maximum DTI threshold, that additional repayment amount can be the difference between approval and decline.

Some lenders also apply higher risk weights to loans above 90% LVR under the prudential framework, which means they might price those loans at a higher interest rate or apply stricter serviceability buffers. That's worth knowing before you assume a 5% deposit and a 95% LVR loan will automatically get you the same interest rate as someone borrowing at 80% LVR.

Deposit Requirements for Investment Property Purchases

Most lenders require a minimum 10% deposit for investment property purchases, with some asking for 20% depending on your employment type and existing debt levels.

Investment loans are assessed more conservatively than owner-occupied loans. Lenders typically add a rental income buffer, assuming the property will sit vacant for a portion of the year, and they apply stricter serviceability tests because investment debt ranks behind owner-occupied debt in the risk hierarchy. If you're self-employed and purchasing an investment property in Adelaide's inner suburbs with a 10% deposit, expect the lender to assess your business income over at least two financial years, factor in any existing business loans or director guarantees, and stress-test your repayment capacity at a rate at least 3.0 percentage points above the actual loan rate.

The introduction of DTI limits from 1 February 2026 also means that lenders now cap the proportion of new investor loans they can write to borrowers with a total DTI ratio of six times or greater at 20% of their quarterly lending. That doesn't stop you from getting approved, but it does mean some lenders will decline applications they might have approved in previous years if you're carrying business debt, personal loans, or other investment property mortgages that push your total debt above six times your gross income.

Using Equity Instead of Cash for Your Deposit

You can use equity in an existing property as a deposit for a new purchase by refinancing or taking out a separate loan secured against that property, provided you meet the lender's LVR and serviceability requirements.

This approach works when you've built up enough equity in your home to borrow against it without exceeding 80% LVR across both properties, or when you're willing to pay LMI to access equity above that threshold. A business owner in Adelaide who purchased a home five years ago and has seen the property increase in value might have $150,000 in available equity even after accounting for the lender's valuation and the 80% LVR limit. That equity can be used as a deposit for an investment property or a business premises purchase without needing to save additional cash.

The risk here is that you're increasing your total debt and using your home as security for a second property. If the investment property falls in value or if your business income drops and you can't cover both sets of repayments, the lender has recourse to both properties. We've worked with clients who used equity to build a portfolio of three or four properties over a decade, and we've also worked with clients who over-leveraged and had to sell an investment property at a loss to avoid defaulting on their home loan. The structure works, but it requires a realistic assessment of your income stability and your capacity to service multiple loans during lean periods.

Where to Get Help with Deposit Planning and Loan Structure

If you're self-employed and trying to work out how much deposit you need, where it should come from, or which lender will actually approve your application given your business structure, call one of our team or book an appointment at a time that works for you. We'll go through your business financials, your savings position, and the specific property you're looking at to figure out which lenders will lend and on what terms.

Frequently Asked Questions