What is a deposit?

This is the sum that you contribute in cash to the cost of buying your home. Despite the changes in home loan availability, you can still buy a house with very little deposit at all, but it is important to understand the costs involved in doing so. Most people save a 20% deposit because with a 20% deposit, you can completely avoid having to pay any lender's mortgage insurance (LMI).

Provided you can make the payments, you can typically finance up to 95% of the property value from a lender on their normal competitive terms. Some may then offer to add the mortgage insurance costs to your loan as well, therefore lending you up to 97% of the property value. With the cost of real estate these days, it is not unusual for first-home buyers to have less than a 20% deposit. Investors might simply want to minimise deposit and maximise gearing benefits.

The deposit is non-refundable after the exchange of contracts.