Do you know what deposit you need for a home loan?

How much deposit do you actually need?

Most lenders require a minimum deposit of 5% of the property value, though you'll typically pay Lenders Mortgage Insurance if your deposit sits below 20%. The difference between those two figures is substantial, both in upfront cost and in how lenders view your application.

Somerville sits within the Melbourne metropolitan region for scheme eligibility purposes, which means local buyers can access the Australian Government 5% Deposit Scheme on properties valued up to $950,000. That figure aligns with much of the current market in the area, where a mix of established family homes and newer townhouses attract owner-occupiers looking for space without moving too far from the peninsula.

Genuine savings and how lenders measure them

A deposit isn't just about having the funds available. Lenders distinguish between genuine savings, which you've accumulated over time in your own accounts, and non-genuine savings such as a one-off gift or a recent lump sum payment. Most lenders want to see at least 5% of the property value held as genuine savings for a minimum of three months, though that requirement shifts depending on the size of your deposit and the loan product you're applying for.

Consider a buyer looking at a property in Somerville near the Eramosa Road precinct. With a 10% deposit, the lender will typically ask for evidence that at least half of that amount has been held in a savings account, term deposit, or offset account for at least 90 days. Payslips, bank statements, and transaction history all form part of that assessment. If the buyer has a 20% deposit, the genuine savings requirement often becomes less rigid, because the lender's risk is lower and LMI doesn't apply.

Gifts from immediate family can still contribute to your deposit, but they're usually classified separately. A signed letter from the family member confirming the funds are a gift and not a loan is standard, and some lenders will accept gifted funds as part of the total deposit while still requiring a portion of genuine savings alongside it.

Lenders Mortgage Insurance and when it applies

LMI is a one-off premium charged when your deposit is less than 20% of the property value. It protects the lender if you default on the loan, and the cost increases as your deposit decreases. For a property valued close to the median in Somerville, LMI on a 10% deposit might add several thousand dollars to your upfront costs, either paid at settlement or capitalised into the loan amount.

The premium isn't fixed across all lenders. Different insurers use different risk models, and the LMI quote you receive from one lender can vary noticeably from another, even on the same loan amount and deposit size. That's one reason why comparing home loan options across multiple lenders often uncovers meaningful differences in total cost, not just in the interest rate itself.

Under the Australian Government 5% Deposit Scheme, eligible first home buyers can avoid LMI entirely by using a government guarantee to make up the gap between their deposit and the 20% threshold. Applications are made through participating lenders, and the scheme applies to both new and established homes, provided the purchase price and the lender's valuation both sit at or below the applicable cap.

Stamp duty relief and how it affects your deposit needs

Victoria offers a full stamp duty exemption on properties valued up to $600,000 for first home buyers, with a sliding concession applying on properties between $600,001 and $750,000. For a buyer purchasing an established home in Somerville, that exemption can remove a cost that would otherwise need to be funded from savings or added to the loan amount where the lender permits.

Stamp duty isn't included in the deposit itself, but it's part of the total funds you'll need at settlement. If you're buying with a 10% deposit and the property sits within the exemption threshold, you won't need to allocate additional savings to cover duty. If the property is valued above $750,000, stamp duty returns to the standard rate, and you'll need to account for that cost separately when working out how much you need to have ready.

The $10,000 Victorian First Home Owner Grant applies only to new homes valued up to $750,000. For buyers looking at established homes in Somerville, the grant won't be available, though the stamp duty relief still applies and often represents a larger saving.

Deposit size and how it affects your loan structure

A larger deposit gives you access to a wider range of loan products and often results in a lower interest rate. Lenders reserve their most competitive pricing for borrowers with a deposit of 20% or more, and some lenders offer further rate discounts at the 30% or 40% deposit level.

The difference isn't always dramatic, but over the life of a home loan, even a small reduction in the rate can shift the total interest paid by tens of thousands of dollars. A buyer with a 25% deposit will generally receive a better rate than a buyer with a 10% deposit, all else being equal, because the lender's exposure is lower and the loan doesn't require LMI.

Deposit size also affects serviceability. A smaller loan amount relative to your income means your application is more likely to meet the lender's serviceability buffer, which currently sits at 3.0 percentage points above the loan product rate. That buffer is applied to every new loan, and it can be the difference between an application being approved or declined, particularly for buyers with other commitments or variable income.

Using equity from another property

If you already own a property, you may be able to use the equity in that property as part or all of your deposit for a new purchase. Equity is the difference between the property's current value and the amount you still owe on any loan secured against it. Lenders will typically allow you to borrow against up to 80% of the property's value without requiring LMI, though that figure can shift depending on the purpose of the new loan and the lender's policy.

In our experience, buyers using equity to fund a deposit often underestimate how much equity they can actually access. A property purchased several years ago in a suburb like Somerville, where values have risen, may have accumulated enough equity to cover a full deposit on a second property without needing to sell. The key is understanding how much the lender will lend against the existing property and ensuring the combined loan amount across both properties still meets serviceability.

If you're considering this approach, a broker can help structure the loans in a way that keeps your options open later, particularly if you plan to hold both properties long term or convert one to an investment loan once you move.

What if your deposit includes funds from a bonus or commission?

Lenders treat employment bonuses, commissions, and other variable income differently depending on how regularly you receive them and how long you've been in the role. A one-off bonus paid into your account a week before you apply for a loan is unlikely to be counted as genuine savings, even if it's a substantial amount.

If you receive a regular annual bonus or commission as part of your employment package, and you can demonstrate a consistent pattern over at least two years, many lenders will accept those funds as part of your deposit. The key is documentation: payslips, employment contracts, and a letter from your employer confirming the structure of your remuneration all help establish that the income is reliable.

For buyers in Somerville who work in industries with variable income structures, this can make a meaningful difference to how quickly you can accumulate a deposit and how lenders assess your overall position.

Call one of our team or book an appointment at a time that works for you. We'll assess your deposit, compare lenders, and structure your application to give you the clearest path to settlement.

Frequently Asked Questions