Saving for your first home is easier to plan when you know which deposit pathway you are aiming for. The amount you need depends on the scheme you use, your lender and the price of the property, so the first step is to choose a target rather than guess.
This guide is for Melbourne first home buyers who are saving now and want to know how much to put aside, which government help sits alongside their savings, and when to speak to a broker.
How Much Deposit Do You Need to Buy Your First Home?
The deposit you need depends on the loan pathway you choose, and a larger deposit generally means a lower loan and less risk of paying Lenders Mortgage Insurance (LMI). Many buyers aim for 20% to avoid LMI, but there are low deposit options that start much lower.
The Australian Government 5% Deposit Scheme lets eligible first home buyers purchase with a 5% deposit, and eligible single parents or legal guardians with a 2% deposit. Housing Australia backs the lender for the part of the loan between the deposit and 20% of the property value, so no LMI is payable. There are no income caps, but applications go through a participating lender only. The trade-off is that you borrow more, so your repayments and the interest you pay are higher than with a bigger deposit. You also need to live in the home as an owner-occupier and move in within six months of settlement.
The scheme has price caps. For Victoria, the cap is $950,000 for Melbourne and Geelong and $650,000 for other areas. The cap for your suburb depends on its postcode in Housing Australia's search tool, so check it before you set a target.
What Does a Higher Deposit Do to Your Repayments?
A larger deposit reduces the loan, which lowers your repayments. The example below uses an illustrative rate of 6.75% p.a. over 30 years, principal and interest. It is not a current offer, and your rate will depend on your lender and deposit size.
Consider a buyer who needs to borrow $600,000. At 6.75% p.a. over 30 years, the monthly repayment is about $3,891. If extra savings cut the loan to $550,000, the repayment at the same rate and term falls to about $3,567. That is roughly $324 a month, or about $3,900 a year, in lower repayments. The cost is the extra time it takes to save, during which prices and your rent may move. Use our mortgage repayment calculator to test your own numbers.
Lenders also look at your living expenses, debts and savings history when they assess your borrowing capacity, so a clear budget helps beyond the deposit itself.
Victorian First Home Buyer Stamp Duty Concessions
In Victoria, no land transfer duty is payable for a first home buyer on a dutiable value up to $600,000. A duty concession applies above $600,000 up to $750,000, and standard rates apply above $750,000. The exemption and concession apply to established homes, new homes and vacant land.
You must live in the home as your principal place of residence for at least 12 months, starting within 12 months of settlement. This lowers the cash you need at settlement, so include it in your budget. The Victorian first home owner grant is $10,000, but it applies only to new homes that have never been sold or lived in, with a dutiable value up to $750,000. It does not apply to established homes.
Our first home buyers page explains how these pieces fit together with your loan.
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Book a chat with a Mortgage Broker at OVM Finance Group today.
Can You Use Your Super to Save a Deposit?
Yes, the First Home Super Saver (FHSS) scheme lets eligible buyers release voluntary super contributions towards a first home. Contributions are limited to $15,000 in any financial year and $50,000 in total, and the ATO adds associated earnings to the release amount.
The scheme is run by the ATO, and eligibility is assessed individually, so a couple can each use their own contributions. You must request a determination before ownership of any property transfers to you, and you must intend to live in the home for at least 6 of the first 12 months once it is practicable. Tax is withheld on release, and if you do not sign a contract or recontribute within the time limits and notify the ATO, additional FHSS tax of 20% of the assessable released amount applies on top of income tax. Salary sacrificed contributions are also locked in super until released, so the money is less accessible. Speak to your accountant about how this affects your own tax position.
Can Family Help With a Gift Deposit?
A gift deposit can speed up your savings, but each lender sets its own rules about how a gift is documented and how much must come from your own savings. Ask your broker before you accept money, because the way it is paid can affect your home loan application.
A gift is not the same as a loan from family. Lenders usually want evidence that the money is a genuine gift, such as a gift letter, and policies differ on how much of the deposit must be genuine savings. A family loan may be treated as a liability or repayment commitment, depending on the lender.
Example: Two Buyers Choosing Between a 5% Deposit and Waiting
Two buyers can choose between buying sooner with a small deposit or saving longer for a larger one, and the right choice depends on cash flow and the property price.
Consider a couple in Melbourne who have saved enough for a 5% deposit on a home with a dutiable value of $600,000 or less. They are eligible for the 5% Deposit Scheme and meet the Victorian eligibility rules, so they qualify for the first home buyer duty exemption. The solution is to apply through a participating lender, keep a cash buffer for legal and settlement costs, and use a repayment calculator to confirm the repayments suit their income. The outcome is that they buy without paying LMI, but they carry a larger loan. At the illustrative 6.75% p.a., each extra $50,000 borrowed adds about $324 a month over 30 years. They decide this is manageable and plan to use an offset account to cut interest once they have spare savings. The offset account may come with a higher rate or an annual fee, so they weigh that against the interest it saves.
Does Pre-Approval Help While You Are Still Saving?
Pre-approval shows you roughly how much a lender may let you borrow, so you can target the right price range before you start inspecting. It is not a final offer, and it can lapse or change if your finances or the lender's policy change.
Getting it early also shows whether your savings, credit history and debts need attention. If you plan to use Help to Buy, note that you should not put a deposit down or bid at auction without conditional approval from a participating lender and Housing Australia.
The team at OVM Finance Group can look at your situation in detail. We can also explain which loan features, such as a fixed or variable interest rate or a redraw facility, suit your plans.
Call one of our team or book an appointment at a time that works for you, and we will help you set a deposit target and a plan to reach it.
Frequently Asked Questions
How much deposit do I need as a first home buyer?
It depends on your pathway. The 5% Deposit Scheme allows eligible first home buyers to buy with 5%, and a 20% deposit generally avoids LMI. A larger deposit means a smaller loan and lower repayments.
Do Victorian first home buyers pay stamp duty?
No land transfer duty is payable on a dutiable value up to $600,000 for eligible first home buyers. A concession applies above $600,000 up to $750,000, and standard rates apply above that.
Can I use super to save a deposit?
Eligible buyers can use the First Home Super Saver scheme to release voluntary contributions, up to $15,000 a year and $50,000 in total. Tax applies on release, so speak to your accountant.
Can I accept a gift deposit from family?
Often yes, but lenders usually want evidence the money is a genuine gift, and policies differ on how much must be your own savings. Check with your broker before accepting the money.
