How much is a down payment for a house?

If you’re an aspiring owner-occupier looking to buy property in Australia, you’re probably familiar with deposit savings. It can take home owners years to gather the savings needed for a house deposit, depending on their financial situation and budget. 

In this home buyer guide, we’ll cover everything you need to know about the upfront cost of a deposit, from how much you’ll likely need to save if you’re a first home buyer to using equity for a down payment if you’re already a home owner. 

Let’s get to the following commonly asked questions: 

• What is a down payment?
• Minimum down payment requirements
• Average down payment amounts
• How to save for a down payment
• Using equity for a down payment

Q1. What is a down payment?

A down payment, often known as a deposit, is the initial money you must pay upfront when purchasing a property. The amount you need is usually calculated as a percentage of the property purchase prices you must pay to secure the home. 

But why do lenders require a lump sum?

First, it demonstrates your commitment to buying a home and shows the seller and lender your financial commitment. Second, it reduces the money you need to borrow, allowing you to take out more competitive loan products and potentially lowering your monthly repayment. 

The deposit size depends on the home’s value and your chosen provider.  By obtaining a property appraisal, you can gain a comprehensive understanding of the property's worth, allowing you to make informed decisions and negotiate favourable terms.

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Q2. Minimum down payment requirements

There’s no “minimum deposit” amount in Australia, and it entirely depends on the loan option you choose. There are mortgages that offer a zero-home deposit option — particularly useful when buying your first home. 

Here are the typical minimum payment requirements: 

1. If you plan to live in the property you're purchasing, the minimum down payment requirement is typically around 5% to 20% of the property's value. However, a 20% down payment is required to avoid paying LMI, which is an additional cost to protect the lender if you default.

2. The Australian Government offers the First Home Loan Deposit Scheme (FLDS), allowing eligible first-home buyers to purchase a property with a 5% down payment (without paying LMI). However, the scheme has specific eligibility criteria and property price caps, which could decrease your borrowing power.

3.  If you're buying an investment property, the minimum down payment requirement is often higher than owner-occupied properties. On average, to secure an investment loan, you’ll need a house deposit of 10% to 30% of the property's value. 

Q3. Average down payment amounts

The average down payment in Australia is typically around 10% to 20% of the property's purchase price. Typically, a 20% down payment is put down to avoid paying lender's mortgage insurance (LMI). Some buyers may opt for a lower down payment, such as 5% or 10%. However, a lower down payment may result in higher mortgage repayments and home loan rates. 

For instance, if you're buying a home for $350,000, the average down payment you would need to save would be between $35,000 to $70,000. Obviously, this is high, and home buyers will need a savings plan to reach this goal.

To assess the impact of LMI on your down payment, you can use an LMI calculator. This tool helps you estimate the cost of mortgage insurance based on your loan amount, loan-to-value ratio, and other factors.

Note: When calculating the affordability of a down payment, it's also essential to consider other financial factors such as stamp duty, term deposit, borrowing power, mortgage insurance and deposit size.

Q4. How to save for a down payment

The costs of buying a home are more expensive than ever, and many Australians struggle to come up with the funds necessary to secure variable-rate or fixed-rate home loans. If you’re looking for saving tips, look no further! Here’s how to save for a down payment. 

1. Set up a savings goal by determining how much you need for a down payment. Research your desirable areas and property values and consider the minimum down payment requirements. This will help you to stay focused.

2. Reduce debt. If you have any outstanding, high-interest debts, work towards paying those off to avoid recurring fees and charges. This will boost your disposable income, allowing you to save more long-term. 

3. If possible, work towards boosting your income. This could be from a side job or freelance role or from investing your hard-earned savings. The extra income you make can be put straight into your savings pot and make extra repayments in the future. 

4. Take advantage of government schemes, such as the home super saver scheme, the First Home owners' Grant, and the government’s First Home Scheme. There are plenty of initiatives set by the Australian government designed to help first-time buyers step onto the property ladder. 

5. Book an appointment with mortgage brokers or financial advisors for professional advice. They can look at your current financial situation and help you with your personal objectives. 

Q5. Using equity for a down payment

If you already own a property or have an active mortgage but own significant equity in your home, you can use these funds to secure financing for a new or second home. By taking out a home equity loan, you can borrow a lump sum based on how much of your home you own, with these funds being used to fund your down payment. 

If you’re unsure how much equity you can release from your home, talk to a mortgage broker or financial advisor. 

Summing up

If you’re struggling to save up for a down payment, there are low deposit options that you can utilise to help you get on the property ladder. 

If you enjoyed this article, stay updated with the WeMoney blog, where we post financial advice, including home buying. Alternatively, read our article ‘When is the first mortgage payment due after settlement in Australia?’

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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.