You have been watching property prices for two years. You have a solid income, meaningful savings, and one persistent question: do you buy now with what you have, or keep saving until you hit that 20% figure?
Neither path is automatically right. What matters is understanding what each one costs, in dollars and in time, so you and your adviser can make an informed call.
How the Two Paths Actually Work
When you borrow more than 80% of a property's value, lenders typically require Lenders Mortgage Insurance (LMI). LMI protects lenders from losses in the event a borrower defaults and is usually charged for borrowers with a Loan to Value Ratio above 80%. Importantly, this cost protects the lender, not you, from loss if you fail to make your loan repayments.
LMI can cost around 1-5% of your home loan amount, depending on your LVR. To put that in dollar terms: LMI can range from $15,752 on a $500,000 property to $65,555 on a $1.5 million property in New South Wales with a 5% deposit, based on Westpac's calculator. These are indicative figures only; the cost is influenced by the LVR, the value of the home, the state you are buying in, whether you are paying LMI upfront or capitalising it into your loan, and which lender you choose. LMI premiums are calculated on a tiered scale based on these variables and can vary by lender.
If you save a full 20% deposit, the 20% deposit avoids LMI entirely. The trade-off is time. The years spent accumulating that extra deposit are years you are not in the market.
There is a third option for eligible first home buyers. The Australian Government 5% Deposit Scheme (formerly the Home Guarantee Scheme) allows qualifying buyers to purchase with just 5% down and no LMI. It is administered by Housing Australia and operates by providing a guarantee to a participating lender, enabling buyers to get a home loan with a smaller deposit and avoid Lenders Mortgage Insurance. Critically, the scheme involves the Australian Government providing a guarantee to your lender, but you are responsible for all costs and repayments.
What the Scheme Covers, and What It Does Not
The scheme expanded significantly from 1 October 2025. The government expanded the scheme to give all first home buyers the ability to buy with a 5% deposit. The number of places are now uncapped, income caps have been removed, and property price caps have been increased under all streams.
Property price caps were significantly raised in October 2025, with Sydney now at $1,500,000, Brisbane at $1,000,000, and Melbourne at $950,000. Always verify your specific location on the official firsthomebuyers.gov.au portal before acting on any cap figure.
There are strict conditions attached. Applicants must plan to live in the home as an owner-occupier; the scheme is not available for investment properties. To keep the guarantee, you must meet obligations on an ongoing basis, such as living in the property as an owner-occupier. If these are not met, the guarantee may no longer apply, and your lender may require you to pay LMI or other additional costs.
For investors and SMSF buyers, the scheme is not applicable. Those buyers are weighing the 5% vs 20% question purely on commercial terms: LMI cost, borrowing capacity, and fund liquidity.
The Trade-Offs: When Each Path Makes Sense
The case for buying sooner with a smaller deposit:
- You stop paying rent and start building equity in your own asset from an earlier date.
- If property values move upward over the years you would have spent saving, the extra capital growth may exceed what you saved in LMI.
- For eligible first home buyers using the scheme, LMI is avoided entirely at 5% deposit, removing the main financial penalty of a small deposit.
The case for saving to 20%:
- Your monthly repayments are lower because your loan is smaller.
- You have no LMI exposure at all, regardless of scheme eligibility.
- A larger deposit can improve your serviceability assessment and give you more lender options.
- For investment and SMSF purchases where the scheme does not apply, avoiding LMI means a real saving, particularly at higher property values.
The honest variable nobody talks about enough is opportunity cost. The money sitting in a savings account earning minimal interest is not working as hard as it might in other forms. That is a conversation for a licensed financial adviser, not a rule of thumb.
For SMSF buyers specifically, there is an additional layer. SMSF loans (Limited Recourse Borrowing Arrangements, or LRBAs) typically require a deposit of 20-30% of the property value plus a demonstrable liquidity buffer remaining in the fund. The deposit question is largely settled for SMSF investors: you will almost certainly need to be well above the 20% mark before a lender will engage.
A Worked Example
Consider two buyers, each purchasing a property at $750,000 in Queensland.
Buyer A saves 20% ($150,000 deposit):
- Loan: $600,000
- LMI: $0
- Time spent saving the full deposit: depends on income and expenses, but commonly 3-5 years for a single income household at this price point
Buyer B buys now with 5% ($37,500 deposit), not eligible for the government scheme:
- Loan: $712,500
- LMI (indicative): potentially $15,000 to $25,000 at this LVR, depending on lender and state. money.com.au notes that LMI can vary considerably by lender and LVR; treat any estimate as a planning figure only.
- Higher monthly repayments due to a larger loan balance
Buyer C buys now with 5% ($37,500 deposit), eligible for the government scheme:
- Loan: $712,500
- LMI: $0 (government guarantee covers it)
- Must live in the property as owner-occupier
- Must buy a home to live in, not an investment property
The numbers shift further when you factor in stamp duty (which varies by state and first home buyer status), conveyancing, inspections, and ongoing costs. None of these are in the deposit itself. A licensed broker can run a full cost comparison for your specific state, income, and purchase price before you commit to anything.
The deposit size is not the only number that matters. The total cost of entry, the size of the monthly repayment, and whether you qualify for any scheme exemptions all feed into the real comparison.
What to Do Next
Clarify your eligibility. If you are buying your first home to live in, check whether the Australian Government 5% Deposit Scheme applies to your situation and your target property price via firsthomebuyers.gov.au. If you are buying an investment property or through an SMSF, the scheme does not apply, and you will need to factor in LMI or plan for a larger deposit.
Get a full cost breakdown from a licensed broker. Ask them to model both scenarios, including LMI cost capitalised into the loan, repayment comparisons, and the impact on your borrowing capacity. For SMSF buyers, an SMSF specialist accountant and a broker experienced in LRBAs should both be involved early.
Talk to EWC about what is available at your price point. Whether you are ready to move now or still a few months away from having your deposit sorted, book a free call and we can walk through the property options that fit your scenario. If you are in construction, ask us about HomePay, our Build Now Pay Later product that gives you zero monthly payments for the first 12 months while your property is being built.
For more on SMSF property structures and investment property finance, visit our insights page or contact us directly.
General information only, not personal financial advice. Speak with a licensed adviser before acting.