The Easiest Way to Work Out Your Home Loan Deposit

Most lenders want to see at least 20 percent of the property value as your deposit, but you can move forward with less if you're willing to pay Lenders Mortgage Insurance.

South Yarra's property market sits at a price point where the deposit requirement can feel like the biggest hurdle to home ownership. The difference between what you've saved and what lenders expect often comes down to understanding loan to value ratio, knowing which costs sit outside the purchase price, and working out whether LMI makes sense for your situation. Get the deposit calculation wrong and you might apply for a loan amount that no lender will approve, or wait years longer than necessary before making an offer.

What Lenders Count as a Genuine Deposit

Your deposit needs to come from genuine savings or acceptable non-cash contributions, and lenders draw a clear line between the two. Genuine savings means money held in your account for at least three months, shown across consecutive bank statements. Gift money from immediate family counts in most cases, but it needs a signed declaration and evidence of the transfer. Equity from an existing property works as a deposit, as does the First Home Super Saver Scheme for eligible buyers.

What doesn't count is money you borrowed last month and moved into a savings account, or funds that appeared suddenly without a clear source. Lenders review three to six months of statements during the home loan application process, and any large deposits that don't match your income pattern will trigger questions. If you can't explain where the money came from with paperwork, it won't be counted toward your deposit.

How the Loan to Value Ratio Changes Your Options

Loan to value ratio is the loan amount divided by the property value, expressed as a percentage. An 80 percent LVR means you're borrowing 80 percent of the property's worth and contributing the remaining 20 percent as your deposit. Lenders price their loans based on this ratio, with lower LVRs attracting better interest rates and fewer restrictions.

Consider a buyer who's found a two-bedroom apartment near Toorak Road. If the property is valued at the current median for South Yarra units, a 20 percent deposit keeps the LVR at 80 percent and avoids LMI entirely. Drop the deposit to 10 percent and the LVR climbs to 90 percent, which triggers an LMI premium and may reduce the number of lenders willing to offer a loan. Some lenders will go as high as 95 percent LVR for owner-occupied purchases, but the interest rate typically increases and you'll need to demonstrate strong income stability. The LVR calculation also determines whether you can access features like an offset account or split loan structure, because some lenders reserve those features for borrowers below 80 percent LVR.

What Lenders Mortgage Insurance Actually Covers

Lenders Mortgage Insurance protects the lender if you default on the loan, not you as the borrower. It's a one-time premium added to your loan amount when your deposit sits below 20 percent, and the cost scales with your LVR. At 85 percent LVR the premium might add several thousand dollars to what you're borrowing, while a 95 percent LVR could mean an LMI cost in the tens of thousands depending on the loan amount.

You can usually add the LMI premium to your home loan rather than paying it upfront, which keeps your cash available for settlement costs and moving expenses. The calculation varies between insurers, and some lenders have access to better LMI pricing than others. In our experience, buyers who are close to the 20 percent mark often benefit from waiting a few more months to avoid the premium entirely, but those sitting at 10 percent might find that paying LMI gets them into the market sooner and lets them build equity while they would otherwise still be saving.

Settlement Costs That Sit Outside the Deposit

Your deposit is only part of what you need in the bank before settlement. Stamp duty in Victoria is calculated on the purchase price and runs into the thousands even for apartments, while conveyancing fees, building and pest inspections, and lender application fees add another few thousand on top. You can't borrow these costs as part of your standard home loan, so they need to come from your savings separate to the deposit itself.

First home buyers in South Yarra may qualify for stamp duty concessions or exemptions depending on the property value and their circumstances, which can reduce the upfront cash requirement substantially. A mortgage broker can walk through the likely settlement costs based on the property you're targeting and make sure your savings cover both the deposit and everything due on settlement day. Running short by even a few thousand dollars at settlement can delay the purchase or require last-minute family assistance, so the calculation needs to happen early.

Using Equity Instead of Cash for Your Deposit

If you already own property, the equity you've built can work as a deposit for your next purchase without needing to sell. Equity is the difference between what your property is worth and what you still owe on the loan. Lenders will let you borrow against that equity to fund a deposit on a second property, often without requiring any additional cash savings.

As an example, someone who owns an apartment in a neighbouring suburb with substantial equity could use that to secure an investment loan or move to a larger owner-occupied property in South Yarra without saving a separate deposit. The lender treats the equity as security, and you end up with loans against both properties. The combined loan to value ratio across all properties still matters, and most lenders cap it at 80 percent to avoid LMI, but the strategy lets you move faster than waiting to save another 20 percent in cash. Your borrowing capacity needs to support the repayments on both loans, so income becomes the main constraint rather than savings.

How Rate Discounts Connect to Your Deposit Size

Lenders offer different interest rate discounts depending on your LVR, and the gap can be significant over the life of the loan. A borrower at 70 percent LVR might receive a rate discount that's 0.20 percent lower than someone at 90 percent LVR, even if both are applying for the same loan product. That difference might sound minor, but over a 30-year loan term it adds up to thousands in additional interest.

South Yarra buyers who can push their deposit higher, either through extra savings or by accessing equity, often unlock rate discounts that reduce the cost of borrowing from day one. Some lenders also reserve certain home loan features like portability or the ability to split between variable and fixed rates for borrowers below 80 percent LVR. If you're weighing up whether to enter the market now or save a larger deposit, the interest rate discount and access to features should factor into the decision alongside the LMI cost.

If you're ready to work out exactly what you need to save for a property in South Yarra, or you want to explore whether LMI or equity makes sense for your situation, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions