Last updated: July 2026

5% Deposit vs 20% Deposit: Buy Sooner or Save Longer?

Should you buy sooner with a 5% deposit using the First Home Guarantee, or save for years to reach 20%? The answer depends on property growth in your area, your savings rate, and your risk tolerance. Here are the real numbers so you can decide.

The Traditional 20% Path

The 20% deposit has long been the gold standard recommendation. It avoids Lenders Mortgage Insurance (LMI), means a smaller mortgage, and gives you a comfortable equity buffer from day one.

But saving 20% on a $700,000 property means accumulating $140,000. At $2,000 per month in savings, that takes almost 6 years. For many first home buyers, the 20% target feels like it keeps moving further away as property prices rise.

The 5% FHBG Path

The First Home Guarantee lets you buy with just a 5% deposit. The government guarantees the remaining 15% to your lender, so you pay zero LMI. Since October 2025, there is no income cap and no annual limit on places. You own 100% of the property.

On a $700,000 property, that is a $35,000 deposit instead of $140,000. At $2,000 per month savings, you could be ready in under 18 months rather than 6 years.

Side-by-Side Comparison on a $700,000 Property

Metric	5% with FHBG	20% Standard
Deposit required	$35,000	$140,000
LMI cost	$0 (government guarantee)	$0 (not required at 20%)
Mortgage amount	$665,000	$560,000
Monthly repayment (6.5%, 30yr)	~$4,200	~$3,540
Total interest over 30 years	~$847,000	~$714,000
Extra interest cost	~$133,000 more	Baseline
Time to save deposit ($2k/month)	~1.5 years	~6 years

The 5% path costs more in total interest but gets you into the market years sooner. Whether that trade-off makes sense depends heavily on what property prices do during the years you would spend saving.

The Opportunity Cost of Waiting

This is the factor that many people underestimate. If property prices grow while you are saving for a larger deposit, you are chasing a moving target.

If a $700,000 property grows at 5% per year, after 5 years it would be worth approximately $895,000. Your 20% deposit target would jump from $140,000 to $179,000. Meanwhile, the buyer who purchased at $700,000 with 5% has captured that $195,000 in capital growth on the full value of the property.

Buy Now at 5%

Purchase price: $700,000
Your deposit: $35,000
Property value in 5 years (at 5%): ~$895,000
Your equity: ~$265,000
Capital gain captured: ~$195,000

Wait 5 Years for 20%

Property price in 5 years: ~$895,000
Your deposit (20%): $179,000
Years spent saving: 5+
Rent paid while saving: ~$130,000+
Capital gain captured: $0

Of course, property prices do not always go up. If your target area has flat or declining prices, waiting to save a larger deposit carries less opportunity cost.

When 5% Makes Sense

You can comfortably afford the higher monthly repayments (with a buffer for rate rises)
Property prices are growing in your target area
You are paying high rent anyway, so much of the extra cost replaces existing spending
You qualify for FHBG and your target property is within the price caps
You want to stop renting and start building equity sooner

When 20% Makes Sense

You want the lowest possible monthly repayments and total interest cost
You are already close to 20% and only need a few more months of saving
Property growth has been flat in your target area
You want maximum borrowing flexibility and access to the best interest rates
Your target property is above the FHBG price cap for your state

The 2% Help to Buy Option

There is an even lower deposit option. Help to Buy lets you purchase with just a 2% deposit. The government buys 30% to 40% of the property alongside you, which dramatically reduces your mortgage and monthly repayments.

The catch: you share capital gains and losses with the government proportionally, your income must be under $103,000 (single) or $165,000 (couple), you must be an Australian citizen, and only two lenders currently participate.

If you qualify and your priority is the lowest possible entry cost, Help to Buy is worth considering alongside the FHBG. But note: you cannot use both schemes on the same property.

See which schemes you qualify for

Answer a few questions and get a personalised strategy showing every scheme you can stack, how much you could save, and what to do first.

Start the free calculator

2 minutes. No sign-up required.

Frequently Asked Questions

Do I pay LMI with a 5% deposit under the First Home Guarantee?

No. The entire point of the FHBG is that the government guarantees the gap between your 5% deposit and the 20% LMI threshold. You pay zero LMI, even though your loan-to-value ratio is 95%. This typically saves $10,000 to $30,000 or more depending on property value and LVR.

Is there still an income cap for the First Home Guarantee?

No. Since October 2025, the income cap has been removed. Previously it was $125,000 for singles and $200,000 for couples. There is also no longer a cap on the number of places available each year.

Can I get a 5% deposit loan without FHBG?

Yes, but you will pay Lenders Mortgage Insurance (LMI), which can cost $8,000 to $30,000+ depending on your loan size and LVR. Some lenders also have stricter approval criteria for high-LVR loans. FHBG removes the LMI cost entirely.

What if property prices fall after I buy with 5%?

With a 5% deposit, you have less equity buffer. A 5% price decline would technically put you in negative equity. However, this only matters if you need to sell. If you can continue making repayments, short-term price movements are less relevant. The FHBG guarantee protects the lender, not you, from this risk.

Sources: Housing Australia: First Home Guarantee | Housing Australia: Help to Buy

Disclaimer: This information is general in nature and does not constitute financial, legal, or tax advice. Calculations are estimates only and may not reflect your exact circumstances. Eligibility criteria and dollar amounts may change without notice. Always verify with the relevant government authority, your mortgage broker, or a licensed financial adviser before making decisions.