Clarity Home Loans mortgage broker Jared Parsons says in today’s market a 20 per cent deposit might not be the only ticket onto the property ladder. Photo: Clarity.
It’s been the age-old golden rule of home buying: save a 20 per cent deposit before you even think about applying for a loan.
Traditionally it’s meant lower repayments, no Lenders Mortgage Insurance (LMI) and a stronger financial footing.
But in 2025, that old rule might just be costing you your dream address, Clarity Home Loans mortgage broker Jared Parsons says.
With rents at record highs and house prices continuing to climb, more buyers are getting into their first home loan with as little as five per cent deposit – and thanks to a raft of government and industry-based waivers, that’s often without paying LMI he says.
For those new to the home-buying world, LMI is a one-off insurance designed to protect the lender (not the borrower) and is based on the size of your loan. It can potentially add up to thousands of up-front costs on top of what you borrow.
That’s why 20 per cent has been the golden figure, eliminating LMI, ensuring lower monthly repayments and more equity in your property from the very beginning.
While this rule still has its merits, it’s not the only ticket onto the property ladder in today’s market, according to Jared.
The downside of trying to save 20 per cent is that it can take years … meanwhile if you’re still paying rent, you risk being priced out of the market as values rise.
“Even if you ignore the COVID price rises, we assume the market is going up year on year,” Jared says.
“For someone paying rent and with the current cost of living, saving for a big deposit can be really hard. Sometimes waiting longer to save 20 per cent just to avoid LMI could actually cost more in the long run. By the time you’ve saved the full deposit, property prices can rise by the same amount or even more, which means you end up paying more for your home in the end.
“Instead you could be in the door and paying off your own place from the get-go.”
Buying with only a five per cent deposit once meant guaranteed LMI but not anymore, Jared says. Clarity is seeing fewer and fewer clients needing to pay LMI at all.
“Government-backed schemes like the Home Guarantee Scheme allow eligible buyers (including first home buyers and single parents) to get in with as little as five per cent – sometimes even two per cent – without paying LMI,” he says.
“In general, eligibility for these types of schemes usually requires you to be a first home buyer or someone who hasn’t owned property in Australia within the last 10 years.
“Some banks will also waive LMI for industry professionals including nurses, lawyers, teachers, accountants and other medicos. But there are conditions including minimum income thresholds and you usually need a 10 per cent deposit.”
It’s important to have a detailed chat with a lender or mortgage broker about the eligibility criteria including income limits and property price caps for such schemes in your state or territory, according to Jared.
Currently in the ACT, for example, the buying threshold is $750,000 with a $200,000 income threshold, however he points out these requirements are changing from the 1st of October, with the income threshold being removed and the property price cap for the ACT increasing to $1 million.
Ultimately the Federal Government’s aim with the scheme is to support more low- to middle-income earners to buy a home of their own, according to Jared.
But even with your deposit sorted, he reminds buyers they also need to allow and plan for the miscellaneous costs that come with your dream purchase.
And they do add up. There’s stamp duty (unless you qualify for concessions), legal fees (to cover conveyancing), building and pest inspections, and bank fees to cover.
“We tell people that on average they’ll need to allow for at least $5000 to cover these costs,” Jared says.
So even though buying that quintessential “home among the gum trees” remains the great Australian dream, it really is a numbers game at the end of the day.
It’s about crunching those numbers and weighing up whether getting in sooner could actually save you money – and put your own roof over your head – in the long run, Jared says.
“A lot of the time it comes down to need versus want (to buy).
“People buy when they can financially afford to buy and when it’s right for them. It really comes down to the cost versus convenience of getting in the door of your own property.”
Find out more at Clarity Financial.
