Buying a home in Sydney’s Inner West is a major financial decision, and one of the first questions many buyers ask is:
How much deposit do I need to buy a home?
There is no single deposit amount that applies to every buyer.
Your required deposit can depend on the property price, your financial circumstances, the lender you apply with, your loan-to-value ratio (LVR), whether you are eligible for a government scheme and whether Lenders Mortgage Insurance (LMI) applies.
For buyers looking at properties in suburbs such as Balmain, Rozelle, Leichhardt, Annandale, Marrickville, Newtown, Petersham, Summer Hill and surrounding Inner West areas, understanding your deposit requirements early can help you set a realistic property budget.
It is also important to remember that your deposit is not the only money you may need to have available. There can be additional purchasing costs that need to be considered before you make an offer.
What Is a Home Loan Deposit?
A home loan deposit is the amount of money you contribute towards purchasing a property, with the remaining amount generally being financed through a home loan.
For example, if you purchased a property for $1 million and contributed $200,000 towards the purchase, you would need to borrow the remaining $800,000, assuming no other costs were being financed.
In this example, your deposit represents 20% of the property’s purchase price.
The relationship between your deposit and the amount you borrow is commonly expressed as the loan-to-value ratio (LVR).
What Is LVR?
LVR compares your loan amount with the value of the property being used as security.
For example:
- $800,000 loan on a $1 million property = 80% LVR
- $900,000 loan on a $1 million property = 90% LVR
- $950,000 loan on a $1 million property = 95% LVR
Generally, the more you contribute upfront, the less you need to borrow relative to the property’s value.
However, a smaller deposit does not necessarily mean you cannot buy a home. Depending on your circumstances and the lender’s criteria, there may be lending options available with a higher LVR.
Is a 20% Deposit Required to Buy a Home?
A 20% deposit is often discussed because borrowing 80% of a property’s value can mean avoiding LMI in many standard lending situations.
However, 20% is not a universal minimum deposit requirement.
Some borrowers may be able to purchase with a smaller deposit, depending on their financial circumstances, the lender, the property and whether they meet the relevant lending criteria or government scheme requirements.
The trade-off is that borrowing a larger percentage of the property’s value can increase the amount you need to borrow and may result in LMI or other lending considerations.
If you are considering a smaller deposit, our guide to Lenders Mortgage Insurance in Sydney’s Inner West can help you understand how LMI may affect your home purchase.
How Much Deposit Do You Need for a $1 Million Home?
Looking at different deposit percentages can make the numbers easier to understand.
For a $1 million property:
| Deposit | Deposit amount | Loan amount* |
|---|---|---|
| 5% | $50,000 | $950,000 |
| 10% | $100,000 | $900,000 |
| 15% | $150,000 | $850,000 |
| 20% | $200,000 | $800,000 |
*These examples do not include purchasing costs or other potential lending costs.
The amount you can actually borrow will depend on your circumstances and the lender’s assessment.
A buyer with a $100,000 deposit does not automatically qualify for a $900,000 home loan simply because the numbers work mathematically.
Your income, expenses, existing debts, credit history, financial commitments and the lender’s assessment all matter.
Your Deposit Is Not the Only Upfront Cost
One of the biggest mistakes first home buyers can make is assuming that their savings only need to cover the deposit.
When purchasing a property in Sydney’s Inner West, you may also need to budget for other costs.
Depending on your circumstances, these may include:
- Stamp duty
- Conveyancing or legal fees
- Building and pest inspections
- Loan-related fees
- Property inspections
- Insurance
- Moving costs
- Strata-related costs for apartments
- Other purchasing expenses
Some first home buyers may be eligible for concessions or government assistance, depending on the applicable rules and their circumstances.
You can use our stamp duty calculator as an initial planning tool.
The important thing is to calculate your total cash requirement, rather than assuming the deposit is the only amount you need before settlement.
Can You Buy a Home With a 5% Deposit?
It may be possible for some buyers to purchase a property with a deposit of around 5%, subject to lender requirements and the buyer’s circumstances.
A smaller deposit means you generally need to borrow a larger percentage of the property’s value.
For example, a 5% deposit on a $1 million property is $50,000, leaving a potential loan amount of $950,000 before considering other costs.
But having $50,000 saved does not automatically mean you can borrow $950,000.
The lender will still assess whether the proposed loan is affordable based on your income, expenses, debts and other financial information.
There may also be LMI or other costs associated with a higher LVR.
What Is Lenders Mortgage Insurance?
Lenders Mortgage Insurance, commonly called LMI, is an insurance arrangement that can apply when a borrower has a higher loan-to-value ratio.
LMI generally protects the lender rather than the borrower.
Whether LMI applies and how much it may cost can depend on factors including the lender, loan amount, LVR and the borrower’s circumstances.
For some buyers, paying LMI may allow them to purchase a property sooner rather than waiting several more years to build a larger deposit.
For others, waiting and contributing a larger deposit may make more sense.
There is no one-size-fits-all answer.
If LMI is relevant to your situation, you can explore our LMI information for Sydney’s Inner West buyers.
What If You Are a First Home Buyer?
If you are buying your first home, the deposit can feel like the biggest barrier to getting into the property market.
The good news is that you should not assume you need to save 20% of the property’s purchase price before you can start exploring your options.
Depending on your circumstances, there may be different lending options and government initiatives that could be relevant.
However, eligibility requirements can change, so it is important to check the current rules that apply to you.
Our first home buyer loan services can help you understand your potential finance options and prepare for the buying process.
How Much Deposit Do You Need for a First Home in Sydney’s Inner West?
The answer depends on the property you are buying and your individual financial circumstances.
For example, if you were purchasing a $900,000 property:
- 5% deposit = $45,000
- 10% deposit = $90,000
- 15% deposit = $135,000
- 20% deposit = $180,000
But again, these figures represent only the deposit.
You may need additional funds for purchasing costs, and your borrowing capacity will determine whether the remaining amount can actually be financed.
This is why it is useful to work backwards from your overall financial position rather than simply choosing a deposit percentage.
Your Borrowing Capacity Matters as Much as Your Deposit
Having a large deposit does not automatically mean you can purchase an expensive property.
Your lender will also assess your ability to service the proposed loan.
Factors that may be considered include:
- Income
- Living expenses
- Existing mortgages
- Credit cards
- Personal loans
- Car finance
- Other debts
- Dependants
- Employment circumstances
- Other financial commitments
This is why two buyers with identical deposits can have very different borrowing capacities.
Before you start attending property inspections, consider using our borrowing power calculator for an initial estimate.
You can also learn more about borrowing capacity in Sydney’s Inner West and the factors that can influence how much you may be able to borrow.
Should You Get Pre-Approval Before Looking at Properties?
Getting your finance organised before seriously searching for a property can help you understand your potential borrowing position.
Home loan pre-approval can provide an indication of how much you may potentially be able to borrow, subject to the lender’s conditions and further assessment.
This can help you establish a more realistic property budget before you start making offers.
For example, if you know your potential borrowing capacity and available deposit, you can narrow your search to properties that fit within your overall financial position.
Learn more about home loan pre-approval in Sydney’s Inner West before you begin seriously negotiating on a property.
Remember that pre-approval is not the same as unconditional approval. The lender may still need to assess the specific property and confirm your circumstances before final approval.
Does the Property Price Affect the Deposit?
Yes.
The amount of money required for a particular deposit percentage increases as the property price increases.
For example:
| Property price | 10% deposit | 20% deposit |
|---|---|---|
| $700,000 | $70,000 | $140,000 |
| $800,000 | $80,000 | $160,000 |
| $900,000 | $90,000 | $180,000 |
| $1,000,000 | $100,000 | $200,000 |
| $1,200,000 | $120,000 | $240,000 |
These are simple examples and do not include other purchasing costs.
For buyers looking in Sydney’s Inner West, where property prices can vary significantly between suburbs and property types, understanding your budget before you start searching can save considerable time.
What About Buying an Apartment?
If you are considering an apartment in Balmain, Marrickville, Newtown, Leichhardt or another Inner West suburb, you should consider more than just the deposit.
The lender may also assess the apartment and its characteristics as part of the lending process.
You may also need to account for ongoing strata costs after purchase.
If you are interested in apartment finance specifically, our guide to buying an apartment in Sydney’s Inner West covers some of the property-specific considerations buyers should understand.
What If You Already Own a Property?
If you already own a property and are looking to purchase another home, your situation can be different from that of a first home buyer.
You may have existing equity that could potentially contribute towards the next purchase.
Depending on your circumstances, you may also be able to consider refinancing or using available equity as part of your overall property strategy.
However, the lender will still assess your existing mortgage, income, expenses and other financial commitments.
If you are looking to access equity, it is important to understand how the additional borrowing could affect your overall financial position.
Can a Guarantor Help With a Smaller Deposit?
Some buyers may consider using a family guarantor to help with a home purchase.
A guarantor arrangement can potentially assist eligible borrowers who have a smaller deposit, depending on the lender’s requirements and the specific structure of the application.
However, becoming a guarantor can involve significant financial responsibilities for the person providing the guarantee.
It should therefore not be treated as a simple way to avoid saving a deposit.
If this is something you are considering, you can learn more about guarantor home loans in Sydney’s Inner West and discuss your circumstances with a qualified finance professional.
How Much Should You Save Before Buying?
There is no single savings target that works for every buyer.
Instead, consider working towards three separate amounts:
1. Your deposit
This is the main contribution towards the property’s purchase price.
2. Your purchasing costs
Allow for applicable stamp duty, legal fees, inspections and other costs.
3. Your financial buffer
It can be useful to retain some savings rather than putting every dollar into the property purchase.
Owning a home comes with ongoing expenses, and unexpected costs can arise.
Having some cash remaining after settlement can give you more flexibility than using every available dollar as your deposit.
What Deposit Do You Need to Buy in Balmain?
If you are specifically looking at buying in Balmain, the amount you need will depend on the purchase price of the property and your lending circumstances.
Balmain includes a variety of property types, so the deposit required for a particular purchase will depend heavily on the property price.
Rather than choosing a suburb first and worrying about finance later, it can be useful to understand your borrowing position and available deposit before you start seriously searching.
You can also explore our mortgage broker services in Balmain if you are considering purchasing in the area.
How a Mortgage Broker Can Help
Working out how much deposit you need is only one part of preparing for a home purchase.
A mortgage broker can help you look at the bigger picture, including your deposit, borrowing capacity, loan structure and potential lender options.
At Stellar Finance Group, our mortgage brokers work with buyers across Sydney’s Inner West and provide finance solutions for home buyers, investors and clients with more complex circumstances. The business focuses on assessing clients’ finances and helping identify suitable loan options.
This can be particularly useful if you are:
- A first home buyer
- Self-employed
- Buying an investment property
- Purchasing a higher-value property
- Using a guarantor
- Considering a smaller deposit
- Looking to access existing equity
- Unsure about your borrowing capacity
Deposit vs Borrowing Capacity: What Matters More?
The answer is that both matter.
Your deposit determines how much you need to borrow relative to the property’s value.
Your borrowing capacity helps determine whether you can afford the loan you are seeking.
For example, you could have a $200,000 deposit but still not qualify for the loan required to purchase a $1 million property.
Conversely, you could have strong borrowing capacity but not enough savings to cover the deposit and purchasing costs.
The goal is to bring the two together.
Ready to Buy a Home in Sydney’s Inner West?
If you are saving for a home in Sydney’s Inner West, do not focus only on reaching an arbitrary deposit percentage.
Instead, look at your entire financial position:
Deposit + purchasing costs + borrowing capacity + ongoing affordability = your realistic home-buying budget.
Once you understand those numbers, you can search for properties with greater confidence and avoid making offers based purely on what you think you can afford.
Start by checking your borrowing capacity, explore home loans in Sydney’s Inner West and consider obtaining home loan pre-approval before making an offer.
If you are ready to discuss your circumstances, you can also get started with Stellar Finance Group.
Frequently Asked Questions
Is a 20% deposit required to buy a home in Sydney?
No. A 20% deposit is not a universal requirement. Some buyers may be able to borrow with a smaller deposit, depending on their circumstances, the property, lender requirements and any applicable schemes. A higher LVR may result in LMI or other considerations.
Can I buy a home in Sydney’s Inner West with a 5% deposit?
It may be possible for eligible borrowers, subject to lender requirements and the buyer’s financial circumstances. A 5% deposit means borrowing a higher percentage of the property’s value, which can affect LVR and potentially LMI.
How much deposit do I need for a $1 million home?
A 5% deposit would be $50,000, 10% would be $100,000 and 20% would be $200,000. These figures are deposit amounts only and do not include purchasing costs or other potential expenses.
Does my deposit affect my home loan interest rate?
Your deposit can affect the LVR of your loan, which can be one factor considered by lenders when assessing a home loan. The interest rate available to you will depend on the lender, loan product and your overall circumstances.
Can I use a guarantor if I do not have a large deposit?
Some eligible borrowers may be able to use a guarantor arrangement to support a home loan application with a smaller deposit. Guarantor arrangements can carry significant responsibilities, so both parties should understand the terms before proceeding.
Do first home buyers need a 20% deposit?
Not necessarily. Depending on eligibility, first home buyers may have access to lending options or government initiatives that can allow them to purchase with a smaller deposit. Current eligibility requirements should always be checked.
Should I get pre-approval before saving my full deposit?
You do not necessarily need to wait until you have saved your final target amount before understanding your borrowing position. Speaking with a mortgage broker early can help you understand your potential budget and what you may need to save.
Can I use equity from another property as my deposit?
Depending on your circumstances and the lender’s requirements, available equity in an existing property may potentially be used as part of the funding for another property purchase. Additional borrowing still needs to meet the lender’s servicing and lending criteria.
