Why saving for a house deposit is your first step to homeownership
Buying a home remains one of life's biggest financial milestones, and it all starts with saving for that crucial deposit. With property prices continuing to fluctuate across Australia, having a solid strategy to build your deposit has never been more important.
Whether you're a first-time buyer or looking to re-enter the market, this guide will help you navigate the deposit-saving journey with practical advice and insider tips from mortgage professionals.
How much do you need to save for a house deposit?
Let's cut to the chase – how much should you be aiming to save?
The 20% deposit benchmark
Most financial experts recommend saving at least 20% of your target property's purchase price. On a $750,000 property, that's $150,000 – no small feat. But there's a good reason for this benchmark:
A 20% deposit allows you to avoid paying Lenders Mortgage Insurance (LMI), which can save you thousands right off the bat. You'll also typically secure better interest rates, as lenders offer more competitive terms to borrowers with larger deposits. Additionally, having a substantial deposit demonstrates to lenders that you're a disciplined saver who can handle ongoing financial commitments, which often improves your overall borrowing capacity.
Understanding the real costs beyond the deposit
Your deposit is just one part of the home buying equation. Remember to budget for stamp duty, which varies by state and can add tens of thousands to your costs. You'll also need to cover conveyancing and legal fees (typically $1,500-$3,000), building and pest inspections (around $300-$800), and mortgage application fees (usually $500-$1,000). Don't forget to include moving costs, which start from approximately $1,000 depending on how much you're bringing to your new home.
For a comprehensive breakdown, we recommend using our home buying cost calculator to get a personalised estimate.
Loan to value ratio (LVR) explained
Your LVR is the amount of your loan divided by the property's value, expressed as a percentage. For example, if you're buying a $600,000 property with a $120,000 deposit (20%), your LVR would be 80%.
Why does this matter? A lower LVR means you present less risk to lenders, which typically results in more favourable interest rates. It also significantly increases your chances of avoiding Lenders Mortgage Insurance, keeping your upfront costs lower.
Can you buy a home with less than 20% deposit?
Yes, you can – and given growing house prices, this is often a smart choice.
There are trade-offs to be aware of.
Low deposit home loans: What you need to know
Many lenders offer loans with deposits as low as 5%, particularly for first home buyers. On a $600,000 property, that's $30,000 instead of $120,000 – significantly more achievable for many people.
However, there are some important considerations when proceeding with a smaller deposit. With a deposit under 20%, you'll typically need to pay Lenders Mortgage Insurance (LMI), which on a $600,000 property with a 5% deposit could cost between $15,000-$25,000. You'll also likely face slightly higher interest rates, as lenders offset their increased risk. Be prepared for lenders to scrutinise your finances more closely, with stricter lending criteria applied to low-deposit applications.
Increasingly, getting into the market with less than a 5% deposit is also possible thanks to new non-bank lenders such as OwnHome, who offer 0% deposit home loans allowing you to get into the market sooner.
Understanding Lenders Mortgage Insurance
LMI protects the lender (not you) if you default on your loan. The cost varies significantly depending on your deposit size (with smaller deposits attracting higher premiums), your loan amount (bigger loans mean higher premiums), and your overall risk profile as assessed by the lender.
LMI is typically a one-off payment that can be added to your loan amount, though this means you'll pay interest on it over the life of your loan. The average LMI premium is around $6,200, but it can be much higher with very low deposits.
Government schemes to help boost your deposit savings
The government offers several initiatives to help first home buyers get into the market sooner.
First Home Owner Grant (FHOG)
The FHOG varies by state and territory but typically provides $10,000-$20,000 for eligible first home buyers, particularly when purchasing or building a new home. To qualify, you'll need to be an Australian citizen or permanent resident without previous property ownership in Australia. Most states also require you to live in the home for a minimum period, usually between 6-12 months after purchase.
First Home Super Saver Scheme (FHSSS)
This innovative scheme allows you to save for your deposit within your superannuation fund, taking advantage of the favourable tax treatment. Key features include:
- Save up to $15,000 per financial year in voluntary super contributions
- Withdraw a maximum of $50,000 in total (plus associated earnings)
- Potential tax benefits compared to saving in a standard savings account
Home Guarantee Scheme
This federal government initiative helps eligible first home buyers purchase a home with as little as 5% deposit, without paying LMI. The scheme has limited places each financial year and includes:
- First Home Guarantee: For first home buyers
- Family Home Guarantee: For single parents with dependents
- Regional Home Guarantee: For people buying or building in regional areas
Applications are managed through participating lenders, with property price caps varying by location.
7 practical strategies to save your house deposit faster
Now for the actionable part – how to actually build that deposit.
1. Create a dedicated savings plan
Start by understanding exactly where your money goes. Track your spending for at least 30 days using a budgeting app to get a clear picture of your financial habits. This will help you categorise essential versus non-essential expenses and identify potential savings. Once you have this clarity, set a realistic monthly savings target that stretches you without being impossible to maintain. A key strategy is to automate transfers to your savings account on payday, ensuring saving happens before spending.
Pro tip: Aim to save at least 20% of your income, but start with whatever percentage is sustainable for you.
2. Boost your income with side hustles
Increasing your income can dramatically accelerate your deposit savings. Many successful first home buyers take on freelance work in their professional field to boost their income. If you have a spare room, consider renting it out for immediate cash flow improvement. Decluttering by selling unwanted items not only generates funds but also prepares you for your eventual move. Some buyers drive for ride-share or delivery services during evenings or weekends, while others leverage their knowledge through online teaching or tutoring.
Even an extra $200-$500 per month can significantly accelerate your savings timeline.
3. Reduce your biggest expenses
Housing and transportation typically consume the largest portions of most budgets, making them prime targets for meaningful savings. Consider sharing accommodation or downsizing to a smaller apartment temporarily to dramatically reduce your rent payments. Many successful first home buyers shift to public transport instead of owning a car, eliminating expenses like fuel, insurance, registration, and maintenance. Refinancing existing debts to secure lower interest rates can free up significant cash flow each month. Don't overlook the power of negotiating regular bills and subscriptions – from internet and mobile plans to streaming services, providers often offer better deals to retain customers who are willing to ask.
4. Take advantage of high-interest savings accounts
Not all savings accounts are created equal, so choosing the right financial products is crucial for maximising your deposit growth. Seek out accounts offering bonus interest rates for regular deposits, as these can significantly boost your savings over time. For funds you won't need immediate access to, term deposits often provide higher interest rates in exchange for locking away your money for a set period. Many savvy savers also explore cash management accounts with competitive rates. Don't forget to ask your bank if they offer specialised savings products specifically designed for home buyers, as these sometimes come with additional benefits or higher interest rates.
Current high-interest savings accounts are offering between 3.5%-4.5% p.a. (as of April 2025).
5. Eliminate high-interest debt
Before focusing on your deposit, tackle any expensive debt that's eating into your savings potential. Credit cards should be your first priority due to their typically high interest rates, often exceeding 20% p.a. After addressing credit card debt, turn your attention to personal loans, car loans, and any outstanding buy-now-pay-later balances. Eliminating these debts before or while saving for your deposit can dramatically increase your saving capacity.
For every dollar you're paying in interest, that's money not going toward your deposit.
6. Consider investment options
If your home buying timeline is 3+ years away, you might consider investment options to potentially grow your deposit faster than a standard savings account. Exchange-traded funds (ETFs) offer a relatively low-cost way to invest across a diverse range of assets. Managed funds can provide professional management of your investments, though they typically come with higher fees. Some deposit savers also invest directly in shares of established companies with strong dividend histories, though this requires more research and carries greater individual company risk.
Remember that investments come with risk, and you should only invest money you won't need in the short term. Speak with a financial advisor before pursuing this strategy.
7. Make your living situation work harder for you
Get creative with your current housing situation to accelerate your savings. Some savvy savers negotiate rent reductions with their landlords in exchange for making property improvements or handling maintenance tasks. Taking on a housemate can instantly cut your housing costs in half, dramatically increasing your saving capacity. For the truly committed, opportunities like house-sitting can significantly reduce accommodation costs, while some first home buyers temporarily move back with family to maximise their saving potential during the final push toward their deposit goal.
How long does it take to save a house deposit?
The timeline varies significantly based on your income, expenses, and target property price.
Real-world saving timelines
Based on our clients' experiences, the current median first home price in metropolitan areas hovers around $650,000, requiring a 20% deposit of $130,000. With average household saving rates between $1,500-$2,500 per month, most first home buyers are looking at a typical timeframe of 4-7 years to save their full deposit.
For a 5% deposit ($32,500), the timeline reduces to 1-2 years for most households.
However, many first home buyers forget to factor in the impact of house price growth during their saving period. This Time To Save calculator demonstrates savings timelines with capital gains factored in.
Creating a realistic savings schedule
Use this simple formula to estimate your timeline:
- Target deposit amount ÷ Monthly savings capacity = Months to reach goal
- Factor in compound interest from your savings account
- Add potential windfalls (tax returns, bonuses, etc.)
For example, saving $2,000 monthly with a 4% interest rate would accumulate approximately $105,000 after 4 years.
Common obstacles to saving a deposit (and how to overcome them)
Rental costs eating into savings
If high rental costs are eating into your savings potential, consider relocating to a more affordable area, even temporarily while you build your deposit. Some buyers explore rent-to-own schemes that allow a portion of rent to contribute toward eventual ownership. Shared accommodation can dramatically cut your housing costs while maintaining independence. Don't underestimate the power of negotiation – many landlords prefer keeping reliable tenants and may be open to better terms if you sign a longer lease or offer to handle some property maintenance.
Inconsistent income
Irregular income presents unique challenges when saving for a house deposit. Starting with a buffer fund can help smooth out income fluctuations, creating stability in your saving pattern. When budgeting, work from your minimum reliable monthly income rather than your best months to ensure consistent progress. Setting percentage-based savings goals (like saving 30% of whatever you earn each month) often works better than fixed dollar amounts for variable incomes. For long-term security while saving, consider income protection insurance to safeguard your deposit progress against unexpected disruptions to your earning capacity.
Lifestyle inflation
Lifestyle inflation can silently erode your deposit savings, particularly as your income increases. Practicing conscious spending helps you evaluate whether purchases align with your homeownership goals. Many successful savers implement a 48-hour rule for discretionary purchases over a certain amount, giving themselves time to consider whether the item is truly worth delaying their property dreams. Shifting focus toward meaningful experiences rather than accumulating material possessions often leads to greater satisfaction while spending less. Getting creative with free or low-cost alternatives for social activities allows you to maintain your social connections without sacrificing your saving progress.
Getting mortgage-ready while you save
While building your deposit, take these steps to improve your mortgage prospects:
Clean up your credit history
Your credit history plays a crucial role in securing mortgage approval. Start by checking your credit score, which is available free through several credit reporting agencies in Australia. Establishing a consistent pattern of paying bills on time demonstrates financial responsibility to potential lenders. Consider reducing your credit card limits, as lenders assess your potential debt capacity, not just your current balances. Take time to review your credit report for any errors and dispute them if necessary. During your saving period, try to avoid applying for new credit, as each application can temporarily impact your credit score.
Demonstrate consistent employment
Lenders look favourably on borrowers who demonstrate employment stability. Having at least 6-12 months in your current position strengthens your application considerably. A steady employment history, even if you've changed employers, shows reliability and career progression. While permanent employment is generally preferred over casual or contract positions, exceptions exist, particularly for professionals in industries where contract work is standard practice.
Manage your existing debts
Managing existing debts properly demonstrates financial responsibility to lenders. Work toward keeping your debt-to-income ratio below 36%, which is a key metric in loan assessments. During your saving period, avoid taking on new debt that could impact your borrowing capacity. If you have multiple debts with varying interest rates, consider consolidating them into a single, lower-interest loan to simplify payments and potentially reduce costs. Maintaining low credit card balances relative to your limits (ideally below 30%) shows lenders you're not reliant on credit for everyday expenses.
Build your savings history
Lenders place significant value on a strong savings history when assessing mortgage applications. Making regular, consistent deposits to your savings account demonstrates the discipline needed for mortgage repayments. Minimizing withdrawals from your savings shows commitment to your financial goals. Over time, these habits create a clear pattern of responsible financial management that reassures lenders. This savings history provides tangible evidence that you can handle the ongoing commitment of mortgage repayments, significantly strengthening your application.
When to speak to a mortgage broker
The ideal time to consult a mortgage broker is about 6-12 months before you plan to buy. This timing allows enough runway to address any potential issues while they're still manageable. A good broker will provide a realistic assessment of your borrowing capacity based on current lending criteria, which often differ between lenders. They can identify any potential red flags that might affect your application and suggest targeted strategies to improve your financial position. Brokers stay current with the ever-changing landscape of government schemes and can help determine which ones you might qualify for. Perhaps most valuably, they can pre-qualify you for finance so you know exactly what you can afford before you start house hunting.
At Felix Finance, we offer free initial consultations to help you plan your home buying journey, even if you're still in the early stages of saving.
The bottom line on saving for your house deposit
Saving for a house deposit requires commitment, strategy, and patience. By understanding how much you need, leveraging available government assistance, and implementing smart savings tactics, you can achieve your goal of homeownership sooner than you might think.
Remember that the property market has cycles, and waiting a little longer to build a bigger deposit may not always put you in a better position for long-term financial success due to property price increases.
Ready to discuss your deposit savings plan and home buying options? Book a free consultation with one of our experienced mortgage brokers today.
