For a $400,000 home in Australia, we typically see lenders require a minimum deposit of $20,000, which is 5% of the purchase price. Saving $80,000, or 20%, eliminates Lender’s Mortgage Insurance and improves your loan terms significantly. Your right deposit target depends on your financial position, your timeline, and whether you qualify for government support schemes.
How Much Deposit Do You Actually Need on a $400,000 Home?
We find that most lenders require a minimum deposit of 5% to purchase a $400,000 property in Australia, which equals $20,000. Saving 20%, or $80,000, removes the requirement for Lender’s Mortgage Insurance and gives you access to more competitive interest rates. We recommend setting your actual deposit target around both the lender’s minimum and the additional upfront costs that come with any property purchase.
The 5% Minimum vs. the 20% Standard: What’s the Real Difference?
A 5% deposit gets you into the market faster, but it comes with trade-offs. Lenders treat low-deposit borrowers as higher risk, which typically means a higher interest rate and a mandatory LMI premium added to your loan. A 20% deposit removes LMI entirely, reduces your loan-to-value ratio, and strengthens your negotiating position with lenders.
For a $400,000 purchase, the gap between these two thresholds is $60,000 in savings. That’s a meaningful difference that directly affects your monthly repayments and the total interest you pay over the life of the loan.
What Does Lender’s Mortgage Insurance Add to Your Costs?
LMI is a one-off premium charged when your deposit falls below 20% of the property value. On a $400,000 purchase with a 5% deposit, we typically see LMI add between $8,000 and $15,000 to your loan, depending on the lender and your loan amount, according to Moneysmart’s guide on Lender’s Mortgage Insurance. This cost is usually capitalised into the loan, which means you pay interest on it for the life of the mortgage. It protects the lender, not you, if you default.
We think understanding this cost is essential before you commit to a low-deposit strategy.
Do Lenders Care Where Your Deposit Comes From?
We always tell clients that lenders scrutinise the source of your deposit closely. Most banks want to see at least three months of genuine savings, meaning money you’ve accumulated yourself rather than a lump sum that appeared suddenly in your account. A gifted deposit from family can still work, but many lenders ask for a signed gift letter confirming it doesn’t need to be repaid. If you’re relying on a guarantor loan instead of a large cash deposit, we recommend confirming your family member’s willingness and understanding the risks before proceeding.
What Other Upfront Costs Should You Budget for Beyond the Deposit?
Your deposit is the highest upfront cost, but it isn’t the only one. We see most buyers underestimate the additional expenses that must be paid before or at settlement. We always suggest budgeting for these costs separately, rather than drawing from your deposit, to protect your borrowing position and avoid last-minute financial pressure.
Stamp Duty, Legal Fees, and Inspection Costs in New South Wales
In New South Wales, a $400,000 property purchase attracts stamp duty of approximately $13,490 for non-first-home buyers, according to Revenue NSW’s transfer duty calculator. First home buyers may qualify for a full exemption or concession depending on the property type and purchase price, with full exemptions currently available for properties valued up to certain thresholds under the First Home Buyer Assistance scheme.
Beyond stamp duty, we recommend budgeting for conveyancing fees between $1,200 and $2,500, building and pest inspections between $400 and $800, and loan application fees that vary by lender. In total, we typically see upfront costs beyond the deposit add $15,000 to $20,000 to your purchase budget.
How Does Your Deposit Size Affect Your Borrowing Power and Loan Terms?
A larger deposit does more than reduce your loan balance. It directly shapes how lenders assess your borrowing capacity, the interest rate tier you qualify for, and whether you need LMI at all. Lenders use your loan-to-value ratio, the loan amount as a percentage of the property value, as a primary risk indicator.
A 10% deposit on a $400,000 home produces an LVR of 90%, which sits in a higher-risk band. A 20% deposit brings your LVR to 80%, unlocking standard loan products with more competitive rates. We’ve seen that even a 0.25% rate difference over a 30-year loan can translate into thousands of dollars in additional interest.
Deposit size isn’t just a savings milestone. It’s a lever that shapes the total cost of your purchase.
Conclusion
For a $400,000 home, your minimum deposit is $20,000, but $80,000 delivers the strongest financial outcome by eliminating LMI and improving your loan terms.
We recommend factoring in stamp duty, legal fees, and inspection costs, typically an additional $15,000 to $20,000 in New South Wales, to build a complete and realistic purchase budget.
At Sydney Home Renovation, we help homeowners and investors plan with confidence. Contact us today to discuss your property and renovation goals.
Frequently Asked Questions
Can I buy a $400,000 house with a 5% deposit in Australia?
Yes. Most lenders accept a 5% deposit, or $20,000, on a $400,000 purchase, but Lender’s Mortgage Insurance will apply, and your interest rate may be higher than with a larger deposit.
How much is LMI on a $400,000 property?
LMI on a $400,000 purchase with a 5% deposit typically ranges from $8,000 to $15,000, depending on the lender and loan amount. It’s usually added to your loan balance rather than paid upfront.
Does the First Home Guarantee help reduce my deposit requirement?
Yes. The Australian Government’s First Home Guarantee allows eligible first home buyers to purchase with as little as a 5% deposit without paying LMI. Income caps and property price thresholds apply, so we recommend checking current eligibility limits before applying.
How long does it take to save a deposit for a $400,000 home?
Saving a 20% deposit of $80,000 takes most buyers between three and seven years, depending on income, expenses, and savings rate. A 5% deposit of $20,000 is achievable in one to three years for many buyers.
What is the minimum deposit needed to avoid LMI on a $400,000 purchase?
You need a minimum deposit of $80,000, or 20% of the purchase price, to avoid LMI on a $400,000 property. Some lenders offer LMI waivers for specific professions, so it’s worth checking your eligibility.
