How to Qualify for a Home Loan with Less Than 20% Deposit in Sydney's Property Market: Lender Comparison and Strategies
With Domain’s House Price Report finding Sydney median house prices sitting around $1.11 million as of March 2025, Sydney's property market remains one of the most expensive in Australia.
As saving a full 20% deposit (roughly $220,000) is out of reach for many aspiring homeowners, fortunately, purchasing a property in Sydney without a 20% deposit is possible.
Understanding the Basics: Why 20% Matters
Lenders prefer borrowers to have a 20% deposit to minimise their risk. A smaller deposit usually results in:
• Higher interest rates
• Lenders Mortgage Insurance (LMI) costs (protecting the lender, not the borrower)
• Stricter lending criteria
However, many lenders are willing to approve loans with deposits as low as 5%, especially if the borrower demonstrates strong income, stable employment, and low existing debts.
Top Lenders for Low-Deposit Home Loans in Sydney
Based on current offerings (as of April 2025), here are several banks and lenders supporting low-deposit borrowers effectively: Table
Note: If you work in a "preferred profession" (e.g., medical, accounting, law, engineering), lenders may waive LMI or allow higher borrowings.
Lenders Mortgage Insurance (LMI) Costs Compared
If you have less than 20% deposit, you'll likely pay LMI unless you qualify for a waiver. LMI costs vary between lenders but are usually based on the loan size and deposit percentage.
Example LMI Costs in Sydney (based on $1M property purchase price):
| Scenario | Deposit | Loan Amount | Estimated LMI | Monthly Repayments (P&I, 6.00% interest) |
|---|---|---|---|---|
| A: 5% deposit | $50,000 | $950,000 | ~$27,000 (capitalised) | ~$6,260 |
| B: 10% deposit | $100,000 | $900,000 | ~$15,000 (capitalised) | ~$5,930 |
| C: 15% deposit | $150,000 | $850,000 | ~$7,500 (capitalised) | ~$5,600 |
| D: 20% deposit | $200,000 | $800,000 | Nil | ~$5,270 |
LMI Strategies:
• Capitalisation: Add the LMI cost to your loan amount to reduce upfront costs.
• Professional Waivers: Check eligibility for industry-specific waivers.
Family Guarantee Options in Sydney
Many Sydney buyers use a family guarantee to avoid needing a large deposit.
How it works:
• A parent or close family member offers part of their property as security.
• Enables borrowing up to 100% of purchase price.
• No LMI payable.
Pros:
• Faster market entry.
• No need to save full deposit.
Cons:
• Family property is at risk if borrower defaults.
• Potential strain on family relationships.
Example of Major Lenders offering Family Guarantee:
• Westpac ("Family Security Guarantee")
• CBA ("Family Support Option")
• NAB ("Family Pledge")
NSW Government Deposit Assistance Programs
NSW offers several schemes that help buyers enter the market with a lower deposit:
1. First Home Buyer Assistance Scheme (FHBAS)
• Transfer duty (stamp duty) concessions or exemptions for homes under $1 million.
• Significant upfront cost savings.
2. First Home Guarantee (part of the Home Guarantee Scheme)
• Buy with as little as 5% deposit.
• Federal Government acts as guarantor for up to 15% of the loan.
• No LMI required.
• 35,000 places available annually (NHFIC Home Guarantee Scheme).
3. Shared Equity Home Buyer Helper (NSW Government)
• For single parents, single older Australians and key workers.
• NSW Government contributes up to 40% equity in new homes and 30% in existing homes.
• Lower initial repayments.
4. First Home Owner Grant (New Homes)
$10,000 grant for buying or building a new home valued up to $750,000.
Lending Scenario Comparison: Different Deposit Amounts
| Lender | Minimum Deposit | LMI Waiver/Reduction Options | Notable Conditions |
|---|---|---|---|
| Commonwealth Bank (CBA) | 5% | For selected professions (e.g., doctors, lawyers) up to 90% LVR without LMI | High credit score and genuine savings required |
| Westpac | 5% | Family Guarantee allows up to 100% LVR without LMI | Requires family property as security |
| NAB | 5% | 95% LVR loans available; special 85-90% LVR no-LMI offers for professionals | Employment in eligible industry essential |
| St. George | 5% | Deposit Assistance Loans for First Home Buyers | Strong servicing capacity required |
| ANZ | 10% | Waiver for professionals; low-LMI premiums for first home buyers | Strict income verification needed |
| Pepper Money (Non-bank) | 5% | LMI capitalisation allowed (add LMI premium to loan) | Higher interest rate compared to big banks |
Note: Repayments are indicative and exclude council rates, strata, insurance, or utilities. Always seek a personalised quote.
Key Strategies to Boost Your Approval Chances
1. Genuine Savings
Lenders prefer at least 5% of the purchase price saved over 3-6 months.
2. Clear Credit History
Ensure no recent defaults, late payments, or high credit card utilisation.
3. Stable Employment
Minimum 6-12 months in current job is ideal.
4. Debt Reduction
Pay down credit cards and personal loans to lower your Debt-to-Income (DTI) ratio.
5. Use a Mortgage Broker
loansHub can match you with lenders best suited for low-deposit loans.
Buying a home in Sydney with less than a 20% deposit is very achievable, especially with the right lender, strategy, and use of government assistance.
While it often involves paying LMI or using a family guarantee, the ability to enter the market earlier can outweigh the additional costs.
Careful planning, lender comparison, and seeking professional advice can significantly improve your chances of home loan approval.
Don't let the myth of needing a "massive" deposit stop you from getting onto the property ladder!