When to Buy with a 5% Deposit & When to Wait

Can You Actually Buy a Home with Just 5% Saved?

You can purchase with a 5% deposit, but whether you should depends on how much the LMI premium adds to your loan, whether you qualify for a government guarantee, and what waiting another year would cost you in rent and price growth.

The Australian Government 5% Deposit Scheme allows eligible first home buyers to purchase with a deposit of as little as 5% of the property value, with Housing Australia providing a guarantee to the participating lender of up to 15% of the property value, enabling borrowers to reach a combined deposit and guarantee of 20% without paying LMI. No income caps apply. If you don't qualify for the scheme, you'll need to factor LMI into your decision, which can add tens of thousands of dollars to your loan amount depending on the purchase price and your deposit size.

Consider a buyer purchasing at $650,000 in Geelong with a 5% deposit. Under the government scheme, they'd avoid LMI entirely. Without the scheme, they'd be looking at an LMI premium in the range of $25,000 to $30,000, depending on the lender and insurer. That's the cost of accessing the property now rather than waiting to save a 20% deposit, which would take another three to four years at typical savings rates. During that time, if property values increase by even 3% per year, the same home could cost over $730,000, meaning the deposit target moves further away faster than most buyers can save.

Property Price Caps Under the Government Scheme

Property price caps from 1 October 2025 are $950,000 in capital cities and regional centres and $650,000 in other areas for Victoria. Regional centres for VIC are Geelong. Both the purchase price and the lender's assessed value of the home must be at or below the applicable cap.

If you're buying in Melbourne or Geelong, the cap is $950,000. If you're buying in Bairnsdale, Mildura, Warrnambool, or most other Victorian towns, the cap is $650,000. The distinction matters because buyers in regional Victoria often find themselves priced out of the scheme not because they can't afford the repayments, but because the property they want to buy sits just above the $650,000 threshold. In that scenario, you either adjust your property search or accept that you'll be paying LMI through a standard loan structure.

How LMI Is Calculated When You're Outside the Scheme

LMI premiums are calculated on a sliding scale based on your loan amount and LVR. The higher your LVR, the higher the premium. At 95% LVR, the premium is significantly higher than at 90% LVR, which is why saving an extra 5% deposit can sometimes reduce your upfront costs by $10,000 or more, even though you're still paying LMI.

The premium is usually capitalised into the loan, meaning you don't pay it upfront, but you do pay interest on it over the life of the loan. On a 30-year loan, that can add thousands more in interest costs. Some lenders also charge stamp duty on the LMI premium, depending on the state, which adds another layer of cost. In Victoria, stamp duty relief is available for first home buyers through a full exemption on properties valued up to $600,000 and a sliding scale concession on properties valued from $600,001 to $750,000, but that relief applies to the property transfer, not the LMI premium.

If you're weighing up whether to buy now with LMI or wait to avoid it, the calculation isn't just about the premium itself. It's about what you're paying in rent while you wait, what the property might cost by the time you've saved more, and whether your income or employment situation is stable enough to qualify now but might not be in 12 months.

What Lenders Actually Assess at 95% LVR

Borrowing at 95% LVR tightens your serviceability assessment. Lenders apply a minimum 3.0 percentage point buffer above the loan product rate when assessing your capacity to service the loan, meaning if the variable rate is 6.2%, they're testing whether you can afford repayments at 9.2%. That buffer has been in place since October 2021 and hasn't shifted.

Some buyers assume that because they've been approved for pre-approval, they'll be approved for settlement, but that's not always the case. If your income drops, your expenses increase, or interest rates rise between pre-approval and settlement, the lender may reassess your application. That risk is higher at 95% LVR than at 80% LVR because your buffer is smaller. A buyer with a 20% deposit has more equity and more room to absorb changes in serviceability. A buyer at 95% LVR doesn't.

Lenders also apply debt-to-income lending limits. APRA activated a DTI lending limit on 27 November 2025, effective from 1 February 2026, applying to all ADIs, with each ADI able to lend up to 20 per cent of new owner-occupier loans and up to 20 per cent of new investor loans to borrowers with a total DTI ratio of six times or greater. If your total borrowing is six times your gross income or more, you fall into that 20% bucket, and some lenders may decline your application even if you meet serviceability, simply because they've exhausted their quota for that quarter.

Split Loan Structures at High LVR

Some buyers at 95% LVR want the certainty of a fixed rate but also want access to an offset account, which most fixed rate products don't offer. A split loan structure lets you fix part of the loan and keep part variable with an offset attached. The question is how to split it.

If you're fixing 50% and keeping 50% variable, you're getting some rate protection but still exposed to variable rate movements on half the loan. If you're fixing 70% and keeping 30% variable, you're more protected but you've got less in the offset structure to reduce interest. There's no universal right answer, but buyers at 95% LVR often benefit from keeping at least 30% to 40% of the loan variable so they can make extra repayments or use an offset without hitting fixed rate break costs if they need to sell or refinance early.

You can read more about how offset accounts work alongside variable rate loans here.

Should You Use the First Home Super Saver Scheme to Get to 5%?

The FHSS Scheme allows first home buyers to make voluntary concessional and non-concessional contributions into their superannuation fund and apply to release eligible amounts toward a home deposit, with up to $15,000 of personal contributions from any one financial year able to be released, with a total cap of $50,000. Concessional contributions are taxed at 15% rather than at marginal income tax rates.

If you're earning $85,000 and your marginal tax rate is 32.5%, salary sacrificing into super and then withdrawing it under the FHSS Scheme saves you 17.5% in tax on those contributions. Over two or three years, that can add $5,000 to $8,000 to your deposit that wouldn't otherwise be there. The catch is timing. Buyers generally need to obtain a determination from the ATO before signing a purchase contract. If you're already under contract and you haven't applied, you've missed the window.

The scheme works well for buyers who are 12 to 18 months away from purchasing and can plan contributions in advance. It doesn't work for buyers who need to move quickly because a property has come up or because they're about to lose a rental lease.

When Buying at 5% Makes Sense and When It Doesn't

Buying at 5% makes sense when you're paying high rent, property values are rising faster than you can save, and you qualify for the government guarantee scheme or the LMI premium is low enough that the total cost of buying now is less than the cost of waiting. It doesn't make sense when your income is unstable, you're stretching serviceability to the limit, or the LMI premium pushes your loan into a range where repayments become unaffordable if rates rise further.

The other factor is employment security. If you're in a probation period, on a casual contract, or your income fluctuates, some lenders won't approve a 95% LVR loan regardless of your serviceability on paper. They want to see at least six months of stable employment, and in some cases 12 months, before they'll lend at that level. If you're self-employed, most lenders want two full years of tax returns, and some want evidence that your income is trending upward, not downward.

If you're not sure whether your situation fits, a loan health check can clarify where you stand before you start looking at properties.

Call one of our team or book an appointment at a time that works for you. We'll walk through your deposit, your borrowing capacity, and whether buying now or waiting another six months puts you in a stronger position. You can book an appointment here.

Frequently Asked Questions