Avoid These 4 Mistakes When Saving Your Deposit

Most lenders require at least 5% of the purchase price as genuine savings, plus enough to cover stamp duty and settlement costs.

The difficulty comes when buyers assume any account balance qualifies, or that a gift from family counts the same way as savings you've accumulated yourself. Lenders assess deposits against specific criteria, and the difference between what you think you have and what a lender accepts can delay or derail your application. Knowing what counts, what documentation you need, and how much buffer to include changes how you prepare.

Counting Funds That Lenders Won't Accept

Genuine savings must have been held in your account for at least three months. A lender views this as evidence you can manage your finances consistently. Funds transferred from another person's account the week before you apply, even if it's your own money, won't meet the requirement. The same applies to a tax refund that arrived recently or a bonus paid in the last few weeks. Lenders look for a pattern, not just a balance.

Consider a buyer who transferred funds from an offset account linked to a parent's loan into their own transaction account two weeks before applying. The balance was there, but the lender couldn't verify how long those funds had been available. The application was held until three months of statements could be provided showing the money sitting undisturbed. That delay pushed settlement back and nearly cost them the property.

If you're planning to use gifted funds, most lenders will accept them as part of your deposit, but they require a signed statutory declaration from the person providing the gift confirming it's not a loan and doesn't need to be repaid. The declaration needs to be completed before the application is submitted, not after. Some lenders will also want to see that the person gifting the money has the capacity to do so, which means providing their bank statements as well.

Assuming 5% Is Enough to Proceed

A 5% deposit gets you to the minimum threshold, but it doesn't cover the full cost of purchasing. Stamp duty in Victoria varies depending on the purchase price and whether you're a first home buyer, but for many properties across North East Melbourne, expect several thousand dollars at a minimum. Add conveyancing, building and pest inspections, and any lender or valuation fees, and the upfront costs extend well beyond the deposit itself.

If your total savings only just meet the 5% figure, you'll need to borrow additional funds or rely on a family guarantee to cover the shortfall. That might work, but it limits your home loan options and means you'll be paying Lenders Mortgage Insurance on a higher loan amount. LMI is calculated on the loan to value ratio, and the less deposit you have, the more expensive it becomes. Planning for 8% to 10% of the purchase price in total upfront funds gives you room to cover costs without scrambling at settlement.

Mixing Offset Balances With Genuine Savings

An offset account linked to an existing loan can hold significant funds, but whether it qualifies as genuine savings depends on the structure. If the offset is in your name and you can demonstrate the balance has been maintained over three months, most lenders will accept it. If the offset is linked to someone else's loan, even if you've been contributing to it, the funds won't count unless you can prove they originated from your own income.

We regularly see buyers who've been contributing to a parent's offset or holding funds in a shared account. The intention was to build savings while reducing the interest their family paid, but when it came time to apply, the lender couldn't attribute those funds to the buyer's own financial discipline. The solution involved transferring the money into an account solely in the buyer's name and waiting the required three months. That meant postponing the purchase, but it also meant the application was assessed correctly when it was eventually submitted.

Overlooking the 20% Threshold and What It Unlocks

Reaching a 20% deposit removes the need for Lenders Mortgage Insurance entirely. That can reduce your upfront loan costs by several thousand dollars, depending on the size of the loan. It also opens access to lenders who don't offer loans above 80% loan to value ratio, which can mean more competitive interest rates and greater flexibility in loan features.

The difference between a 10% deposit and a 20% deposit might represent another year or two of saving, but it changes the loan structure significantly. A borrower with a 10% deposit purchasing in Macleod, for example, would face LMI costs and a smaller pool of lender options compared to someone who waited and saved the additional 10%. Whether that wait is worthwhile depends on how quickly property values are moving and whether delaying the purchase means being priced out of the market altogether. There's no universal answer, but understanding what the 20% threshold unlocks allows you to weigh the decision with accurate information.

For buyers who are close but not quite at 20%, a loan health check on any existing debts can sometimes improve your borrowing capacity enough to reduce the required deposit or make the 20% figure more achievable sooner.

Misjudging How First Home Buyer Schemes Affect Deposit Requirements

The Victorian First Home Owner Grant and the First Home Loan Deposit Scheme both reduce the amount of cash savings you need upfront, but they don't eliminate the deposit requirement entirely. The grant provides funds that can be used toward your purchase, but lenders still expect you to demonstrate genuine savings separate from the grant amount in many cases.

Under the First Home Loan Deposit Scheme, eligible buyers can secure a loan with as little as a 5% deposit without paying LMI, because the government guarantees the shortfall. That makes it possible to proceed sooner, but the 5% still needs to meet the lender's criteria for genuine savings. If you're relying on the scheme, your application will still be assessed on income, expenses, and credit history in the same way as any other loan. The scheme removes one barrier, but it doesn't bypass the lender's responsibility to ensure you can service the loan.

Buyers in areas like Greensborough or Bundoora who are targeting properties at the lower end of the price range often assume they can enter the market with minimal savings if they qualify for the scheme. That's partially correct, but it still requires planning and the right documentation. Applying for home loan pre-approval before you start searching confirms what you can borrow and what deposit the lender will accept, which keeps your search realistic and your timeline on schedule.

Your deposit affects more than whether your loan is approved. It influences your interest rate, your repayment structure, and how much flexibility you have if your circumstances change. Taking the time to build a deposit that comfortably exceeds the minimum, and ensuring it's structured in a way that lenders recognise, improves your position before the application is even submitted. Call one of our team or book an appointment at a time that works for you.

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