How to buy a home without a 20% deposit


In today’s climate, a small flat in Sydney could cost you over half a million dollars. Therefore, saving for a 20 percent deposit could amount to $100,000 or more. For some, saving that amount of money may seem overwhelming. That’s where Lenders Mortgage Insurance (LMI) can step in and take some weight off your shoulders.

What is it?

If you do not have a 20% deposit saved up for your home, should your home loan go into default, LMI protects the lender ensuring that the bank will get their money back if the property needs to be sold.

LMI allows borrowers to purchase a home with a smaller deposit. Generally, a 20 percent deposit provides enough security against any falls in the property value. However, LMI can offer the same protection.

What’s in it for you?

While LMI may come across as an additional expense to some borrowers, this insurance allows buyers to enter the market sooner than if they were to save for the full deposit. As an example, a 5 percent deposit saved for a $500,000 property, brings the deposit down from $100,000 to $25,000.

LMI can be especially advantageous in a housing market that is rising rapidly. Paying the LMI premium could cost last than taking the time to save for a 20 percent deposit. By the time you’ve saved for the full 20 per cent deposit, the increase in property price could be more than the insurance premium. Also, if you consider the cost of rent you pay while saving, the added cost of LMI might be beneficial.

What you need to know

Depending on the bank, you may be able to roll the premium into your mortgage, which would mean that you pay it off month by month with your home loan.

The amount of the premium depends on the amount you have saved. For instance, a 10 percent deposit may have a much lower premium than a 5 percent deposit. Therefore, it is best to save as much as possible, even if you do not wish to save the full 20 percent.

If you’re saving for a property and don’t have the 20 percent deposit saved, get in contact with us. We will be able to consider your options and work out whether you could buy now or continue to save your deposit.