How Much Deposit Do I Need to Build a New Home in Australia?

Building a new home is an exciting milestone, but understanding how much deposit you need can be confusing. The amount required depends on the lender you choose, whether you're eligible for government assistance, and whether you're building a home to live in or as an investment.

Key Takeaways:

  • A 20% deposit is the standard benchmark if you want to avoid paying Lenders Mortgage Insurance (LMI).
  • Many lenders will approve construction loans with as little as a 5% deposit, although LMI usually applies.
  • Eligible first home buyers may be able to build with a 5% deposit and no LMI through the Australian Government's First Home Guarantee.
  • In South Australia, HomeStart offers construction loans with lower deposit requirements for eligible borrowers.

Construction Deposit Requirements at a Glance

Traditional lenders generally require:

  • 20% deposit – No LMI
  • 5% deposit – LMI usually applies

Government-backed options include:

  • First Home Guarantee – 5% deposit, no LMI (eligible buyers)
  • HomeStart Graduate Loan – From 5% (or 2% with selected builders)
  • HomeStart Standard Loan – From 8% (or 2% with selected builders)

How Much Deposit Do You Need to Avoid LMI?

A 20% deposit is the simplest way to avoid Lenders Mortgage Insurance. LMI protects the lender rather than the borrower and can add thousands of dollars to the cost of your loan.

For example, if your land and construction costs total $650,000, you'll generally need a $130,000 deposit to avoid LMI. Although saving a larger deposit takes longer, it can save between $10,000 and $25,000 in insurance costs.

What Is the Minimum Deposit for a Construction Loan?

Many Australian lenders will consider construction loans with a 5% deposit, provided you meet their lending criteria.

Typically you'll need:

  • Evidence of genuine savings (often held for at least three months).
  • A strong credit history.
  • Sufficient income to comfortably repay the loan.
  • A fixed-price building contract.

Construction loans are paid to your builder in stages as work progresses, so lenders carefully assess your ability to manage repayments throughout the build.

How Does the Australian Government 5% Deposit Scheme Work?

Eligible first home buyers may be able to build with just a 5% deposit through the First Home Guarantee.

Housing Australia guarantees part of the loan, allowing participating lenders to treat it as though you had a 20% deposit. This means eligible buyers can avoid paying LMI.

The scheme generally applies to:

  • House and land packages
  • Vacant land with a building contract
  • Some off-the-plan builds

Applicants must meet the current eligibility requirements and property price caps.

Can You Build with a HomeStart Loan?

South Australian buyers may qualify for a HomeStart construction loan.

Depending on the product, eligible borrowers can build with:

  • 8% deposit under the standard construction loan.
  • 5% deposit through the Graduate Loan for eligible qualification holders.
  • As little as 2% with selected builder partnerships.

A major benefit is that HomeStart does not charge LMI, helping reduce upfront costs.

Building an Investment Property

If you're building an investment property, most lenders prefer a 20% deposit. While some lenders may approve lower deposits, you'll usually pay higher interest rates and LMI.

A larger deposit can improve cash flow, reduce borrowing costs and provide greater financial flexibility.

Frequently Asked Questions

Yes. Many lenders allow the FHOG to contribute towards your deposit. However, because the grant is often paid during construction rather than upfront, you'll still need enough funds to cover your initial costs.

Yes, although policies vary between lenders. Some banks still require part of the deposit to come from genuine savings, while specialist lenders may be more flexible.

Yes. Construction loans generally require interest-only repayments based on the amount that has been drawn down, making repayments lower during the early stages of the build.

If your building costs increase after loan approval, you'll usually need to cover the additional amount yourself unless the lender agrees to reassess your loan.

Our Advice

One of the most common mistakes we see is buyers saving only the minimum required deposit. It's also important to budget for unexpected site costs, variations, and living expenses while your home is being built.

As a guide, having an additional cash buffer of around 3% above your minimum deposit can provide valuable peace of mind throughout construction.

Disclaimer

This information is general in nature and does not constitute financial or legal advice. Lending policies, government schemes and eligibility requirements can change, so always seek advice from a qualified mortgage broker or financial adviser before making financial decisions.