Deposit

Deposit is the upfront cash payment you make when purchasing property or assets. It represents your initial equity stake and reduces the amount you need to borrow.

How Deposits Work

Basic formula:

• Purchase price: $700,000
• Deposit: $140,000 (20%)
• Loan amount: $560,000
• Your equity: $140,000 from day one

Paid at exchange of contracts:

• Initial deposit (usually 5-10% of price) paid when you sign
• Remainder paid at settlement (30-90 days later)

Example timeline:

• Week 1: Offer accepted on $750,000 property
• Week 2: Exchange contracts, pay $37,500 deposit (5%)
• Week 3-12: Loan approval, building inspection, conveyancing
• Week 12: Settlement day, pay remaining $112,500 (15%) + stamp duty + costs
• Total deposit: $150,000 (20%)

Standard Deposit Amounts

20% Deposit (Ideal)

Benefits:

• No Lenders Mortgage Insurance (LMI)
• Best interest rates
• Easier approval
• More lender options

Example: $650,000 property

• Deposit: $130,000 (20%)
• Loan: $520,000
• LMI: $0
• Rate: 5.9% p.a.
• Monthly payment: $3,090

10% Deposit (Common)

Requires:

• Lenders Mortgage Insurance (LMI): $10,000-$25,000
• Good credit score (680+)
• Stable employment

Example: $650,000 property

• Deposit: $65,000 (10%)
• Loan: $585,000
• LMI: ~$18,500 (added to loan)
• Total loan: $603,500
• Rate: 6.1% p.a. (0.2% higher)
• Monthly payment: $3,665

Cost comparison:

• 20% deposit: $3,090/month
• 10% deposit: $3,665/month
• Extra cost: $575/month ($207,000 over 30 years)

5% Deposit (Minimum)

Requires:

• First Home Guarantee (government scheme) OR expensive LMI
• Excellent credit (750+)
• High income relative to loan
• Perfect employment history

Example: $600,000 property (with First Home Guarantee)

• Deposit: $30,000 (5%)
• Loan: $570,000
• LMI: $0 (government guarantees loan)
• Rate: 6.3% p.a.
• Monthly payment: $3,545

Without First Home Guarantee:

• LMI: ~$25,000-$30,000
• Total loan: $595,000-$600,000
• Rate: 6.5% p.a.
• Much more expensive

Genuine Savings Requirement

Lenders prefer deposits from "genuine savings"—money you've saved over time, not gifts or windfalls.

Genuine savings:

• Salary deposited to savings account over 3-6 months
• Term deposits held 3+ months
• Shares/managed funds held 3+ months

Not genuine savings:

• Gift from parents (recent deposit)
• Tax refund (lump sum)
• Inheritance (just received)
• Selling assets (unless held long-term)

Typical requirement:

• 5% genuine savings (minimum)
• Remaining deposit can be gifts/windfalls

Example: $700,000 property

• Total deposit needed: $140,000 (20%)
• Genuine savings: $35,000 (5% minimum)
• Gift from parents: $105,000
• Lender accepts (meets 5% genuine savings threshold)

Source of Deposit Funds

1. Personal Savings (Best)

Demonstrated by:

• Bank statements showing regular deposits
• Consistent savings pattern (6-12 months)
• Funds held in your name

Example:

• Save $2,500/month for 24 months
• Total saved: $60,000
• Lender sees: Disciplined saver, low risk
• Strong application

2. Gift from Family

Common for first home buyers:

• Parents/family provide $20K-$100K+
• Must be documented as gift, not loan

Required documentation:

• Statutory declaration stating it's a gift
• Bank statements showing funds transfer
• Letter from donor confirming no repayment expected

Example:

• Your savings: $40,000 (genuine savings)
• Parents' gift: $90,000
• Total deposit: $130,000 (20% of $650K property)
• Acceptable (meets genuine savings + gift is documented)

3. Equity from Existing Property

Using equity as deposit:

• Own property worth $600K, owe $300K
• Equity available: $180K (80% LVR - $300K owing)
• Use $120K equity as deposit for $600K new property

Process:

• Refinance existing property to access equity
• Transfer funds to new purchase
• Secure both properties as collateral

4. First Home Buyer Grant

Government grant:

• $10,000-$30,000 (varies by state)
• Paid at settlement
• Reduces loan amount

Example: QLD regional buyer

• Property: $580,000
• Your savings: $58,000 (10%)
• First Home Buyer Grant: $30,000
• Effective deposit: $88,000 (15.2%)
• Loan: $492,000 instead of $522,000

5. Guarantor (No Cash Deposit)

Family guarantor:

• Parents use their property as security
• You provide minimal/no cash deposit
• Avoids LMI

Example:

• Property: $650,000
• Your savings: $30,000 (4.6%)
• Parents guarantee: $100,000 of their home equity
• Total security: $750,000
• Lender sees: 115% security
• LMI: $0

6. Superannuation (Rare)

First Home Super Saver Scheme:

• Save extra into super (up to $15K/year, $50K total)
• Withdraw for first home deposit
• Tax advantages

Limitations:

• Must be first home buyer
• Complex process
• Most use other deposit sources

Deposit vs Other Upfront Costs

Deposit is just one cost—don't forget the others.

Example: $700,000 property purchase in NSW

| Cost | Amount | % of Price | |------|--------|------------| | Deposit (20%) | $140,000 | 20.0% | | Stamp duty | $26,490 | 3.8% | | Conveyancing | $1,800 | 0.3% | | Building inspection | $600 | 0.1% | | Loan application | $400 | 0.1% | | Total upfront | $169,290 | 24.2% |

Cash required beyond deposit:

• Stamp duty: $26,490
• Conveyancing/legal: $1,800
• Inspections: $600-$1,200
• Moving costs: $1,500-$3,000
• Total extra: $30,000-$32,000

Common mistake:

• Save 20% deposit ($140K)
• Forget other costs ($30K)
• Short $30K at settlement (can't proceed)

Solution:

• Save 20% deposit PLUS 4-5% for costs
• Total: 24-25% of purchase price in cash

How Deposit Size Affects Borrowing

Interest Rates by LVR

Rate tiers:

• 60-70% LVR: 5.79% p.a. (lowest)
• 71-80% LVR: 5.99% p.a.
• 81-90% LVR: 6.29% p.a.
• 91-95% LVR: 6.59% p.a.

Example: $600,000 loan

• At 5.79% (30% deposit): $3,510/month
• At 6.59% (5% deposit): $3,820/month
• Difference: $310/month ($111,600 over 30 years)

LMI Costs by LVR

| LVR | LMI Cost (on $650K property) | |-----|------------------------------| | 80% or less | $0 | | 85% | $8,500 | | 90% | $18,500 | | 95% | $28,500 |

Example impact:

• 20% deposit: No LMI
• 10% deposit: $18,500 LMI
• Extra cost: $18,500 upfront (or added to loan = $25,000 over life)

Strategies to Build Your Deposit

1. High-Intensity Savings (12-24 Months)

Aggressive approach:

• Cut expenses to bare minimum
• Save 40-60% of income
• Side hustles for extra income

Example:

• Household income: $140,000 ($9,000/month after tax)
• Living expenses: $3,500/month (share house, no luxuries)
• Savings: $5,500/month
• 20% deposit ($130K) saved in: 24 months

Strategies:

• Move back with parents (save rent)
• Share accommodation (reduce costs)
• Sell car (use public transport)
• No holidays/entertainment
• Second job/side gig

2. First Home Guarantee Scheme

Government assistance:

• Buy with 5% deposit
• No LMI (government guarantees 15%)
• Limited places (35,000/year)

Eligibility:

• First home buyer
• Income under $125K (single) or $200K (couple)
• Australian citizen/permanent resident

Example:

• Property: $600,000
• Deposit: $30,000 (5%)
• Without scheme: $18,000-$25,000 LMI
• With scheme: $0 LMI
• Savings: $18,000-$25,000
• Time to market: 2 years faster (don't need 20% deposit)

3. Government Co-Contribution Schemes

Some states offer:

• Government contributes 20-40% of purchase price
• You buy with smaller deposit
• Share equity with government

Example: NSW Shared Equity Scheme

• Property: $700,000
• Your deposit: $35,000 (5%)
• NSW Gov contributes: $280,000 (40%)
• Your loan: $385,000
• LVR on your loan: 55% (no LMI, great rate)

4. Family Assistance

Options:

• Cash gift: $50K-$150K
• Guarantor: Use parents' home equity
• Co-borrower: Parents apply jointly

Example: Gift

• Your savings: $50,000
• Parents' gift: $80,000
• Total deposit: $130,000 (20% of $650K)
• Enter market 2-3 years earlier

5. Side Hustles and Extra Income

Boost savings rate:

• Freelance work: +$500-$2,000/month
• Uber/delivery: +$400-$800/month
• Rent spare room: +$800-$1,500/month

Example:

• Main job: Save $3,000/month
• Side hustle: +$1,000/month
• Total savings: $4,000/month
• $120,000 deposit saved in: 30 months (vs 40 months)

Deposit FAQs

Can I use my partner's savings?

Yes, if applying jointly.

• Combined savings = larger deposit
• Both names on title
• Both liable for loan

What if I don't have 5% genuine savings?

Options:

• Wait 3-6 months to demonstrate savings pattern
• Use guarantor (parents' equity)
• Non-traditional lenders (may accept gift-only deposits, higher rates)

Can I borrow the deposit?

No—lenders don't allow borrowed deposits.

• Personal loan for deposit = rejected
• Must be genuine savings or gift

Exception: Equity from existing property (secured borrowing)

How quickly can I save a deposit?

Depends on income and expenses:

• $100K household income, save $2,500/month: 20% deposit ($130K) in 52 months (4.3 years)
• $150K household income, save $4,500/month: 20% deposit ($130K) in 29 months (2.4 years)
• $180K household income, save $6,000/month: 20% deposit ($130K) in 22 months (1.8 years)

Deposit Calculator

Steps to calculate your deposit:

1. Target property price: $700,000
2. Deposit percentage: 20% = $140,000
3. Other upfront costs: $30,000 (stamp duty, conveyancing, etc.)
4. Total cash needed: $170,000
5. Current savings: $45,000
6. Still need: $125,000
7. Monthly savings: $4,000
8. Months to save: 31 months (2.6 years)

Final Thoughts

Your deposit is the foundation of your property purchase—larger deposits unlock better rates, avoid LMI, and make approval easier.

Key principles:

• Aim for 20% (avoid LMI, best rates)
• Minimum 5% genuine savings (show discipline)
• Budget for total costs (deposit + stamp duty + fees = 24-25% of price)
• Build consistently (regular savings > lump sums)

Typical deposit scenarios:

Conservative (20% deposit):

• $650,000 property
• Deposit: $130,000
• Other costs: $28,000
• Total cash needed: $158,000
• LMI: $0
• Rate: 5.9%
• Best long-term outcome

Moderate (10% deposit):

• $650,000 property
• Deposit: $65,000
• Other costs: $28,000
• LMI: $18,500 (capitalized)
• Total cash needed: $93,000
• Rate: 6.1%
• Enter market faster, but pay more over time

Aggressive (5% deposit with First Home Guarantee):

• $600,000 property
• Deposit: $30,000
• Other costs: $25,000
• LMI: $0 (government backed)
• Total cash needed: $55,000
• Rate: 6.3%
• Fastest market entry for first home buyers

Before you start saving:

• Calculate target deposit (20% of target property price)
• Add 4-5% for other upfront costs
• Set monthly savings goal
• Open high-interest savings account (5-5.5% p.a.)
• Automate transfers (pay yourself first)
• Track progress monthly

Speak to a NIK Finance broker to:

• Determine minimum deposit for your situation
• Compare 10% vs 20% deposit scenarios
• Access lenders accepting lower deposits
• Structure family gifts appropriately
• Maximize First Home Buyer benefits

The power of a larger deposit:

• 10% deposit: Borrow $585K at 6.1%, pay $3,665/month
• 20% deposit: Borrow $520K at 5.9%, pay $3,090/month
• Difference: $575/month savings ($207,000 over 30 years)

A larger deposit saves you tens of thousands in LMI and hundreds of thousands in interest—making those extra months of saving worthwhile for long-term wealth building.