Saving for a home

A deposit is the upfront slice of a home's price you pay yourself, with the bank lending the rest. It is the tallest wall between young Australians and ownership, so it deserves an honest plan rather than a vague hope. Here is how the wall is built, and the doors through it.

Why 20% is the magic number, and why 5% can work

Banks prefer a deposit of 20% of the purchase price. Borrow more than 80% and they usually require lenders mortgage insurance, called LMI, an insurance premium that can cost many thousands of dollars and which protects the bank, not you. That is the standard game. The government changes it for first home buyers: under the First Home Guarantee, eligible buyers can purchase with as little as a 5% deposit without paying LMI, because the government guarantees part of the loan. Places and eligibility rules exist and the details change, so check the current settings on the government's housing website when you are close to ready.

It helps to understand why LMI can be so large, because the number surprises people. LMI is priced on risk, so the smaller your deposit and the bigger your loan against the property, the more it costs, and the premium climbs steeply as the deposit falls from 20% toward 5%. On a large loan it can reach into the tens of thousands of dollars, and buyers often borrow the premium on top of the loan, which means paying interest on the insurance for years afterwards. So a small deposit does not simply leave you with a bigger loan, it can add a real one off cost as well, and that cost is exactly what the First Home Guarantee is designed to remove for those who qualify.

First Home Super Saver, and where deposit money lives

The First Home Super Saver scheme lets you make extra contributions into super and later withdraw them, plus deemed earnings, for a first home deposit. Because super contributions are taxed lightly, the same savings effort can build a deposit faster inside super than outside it. The rules and caps change over time, so read the current version on the tax office website before contributing. Money you will need within a few years, whether inside this scheme or not, belongs in savings style vehicles, not in shares: a market dip the year you want to buy is a risk you do not need.

The honest timeline

Run the numbers without flinching. A 5% deposit on a $600,000 unit is $30,000, plus several thousand more for costs, though most states cut or waive stamp duty for first home buyers under price caps. Saving $250 a week reaches $30,000 in a bit over two years. Saving $120 a week takes almost five. Those are real timelines for real incomes, and they are exactly why the automatic saving habit from earlier topics matters. They are also why flexibility, a unit instead of a house, a different suburb or city, buying with a partner, is not lowering the bar. It is playing the actual board.

There is one more force to put in the plan: the deposit you are chasing may not sit still. If prices rise 5% while you save, an illustrative $600,000 unit becomes $630,000, so the 5% deposit you needed grows from $30,000 to $31,500, and you are saving up a slope. That is not a reason to panic or to overreach into a loan you cannot handle, but it is a reason to keep the saving automatic and steady rather than waiting for a perfect moment. It also helps that money in a high interest savings account earns interest while you wait, small at first and quietly useful over a couple of years, and a savings account is the safe home the earlier lessons pointed to for money you will need soon.