Do You Know What Deposit You Need for Investment Property?

What Deposit Do You Need for an Investment Property?

Most lenders require a minimum deposit of 20 per cent of the purchase price to avoid lenders mortgage insurance on an investment property loan. Some lenders will accept a deposit as low as 10 per cent, though this triggers LMI premiums and typically requires a stronger income position. The deposit you need depends on the loan to value ratio the lender is prepared to accept, your borrowing capacity, and whether you are using cash savings or equity from an existing property.

The decision you face is whether to delay while you save a larger deposit or proceed with a smaller deposit and absorb the LMI cost. That choice depends on how much rental income you expect, how quickly property values are moving in your target area, and whether you can service the loan under the lender's assessment rate.

Williamstown buyers often look to leverage equity in their existing home rather than drawing down cash savings. The suburb's median house values have held consistently above regional averages, which means many owner-occupiers hold sufficient equity to fund a deposit on a second property without liquidating other investments. If you own property near Nelson Place or the Esplanade precinct, your equity position may support a deposit of 20 per cent or more on an investment purchase without requiring any cash outlay.

How Lenders Calculate the Loan to Value Ratio

The loan to value ratio is the loan amount expressed as a percentage of the property's value. A lender offering an 80 per cent LVR on a property valued at $600,000 will lend up to $480,000, requiring a deposit of $120,000 plus settlement costs. At 90 per cent LVR, the same lender would advance $540,000 and require a deposit of $60,000, but LMI would apply.

Under APS 112, investment loans attract higher risk weightings than owner-occupied loans at the same LVR. Lenders pass this capital cost through to borrowers in the form of higher interest rates or stricter serviceability criteria. At LVRs above 80 per cent, the additional risk weighting becomes pronounced, and most lenders require the borrower to demonstrate stronger income or lower existing debt commitments.

Consider an investor purchasing a two-bedroom apartment near Commonwealth Reserve with a 15 per cent deposit. The lender applies an 85 per cent LVR and charges LMI based on the loan amount and the higher risk category for investment lending. The LMI premium might add several thousand dollars to the upfront cost, and the interest rate may sit 0.20 to 0.40 percentage points above the rate offered at 80 per cent LVR. The investor's serviceability is also tested at the loan product rate plus a 3.0 percentage point buffer, meaning the loan must remain affordable even if the variable rate rises by that margin.

Using Equity from Your Owner-Occupied Property

Equity is the difference between the current value of your property and the amount you owe on it. If your Williamstown home is valued at $900,000 and your mortgage balance is $500,000, you hold $400,000 in equity. Lenders will typically allow you to borrow against up to 80 per cent of that property's value without requiring LMI, which in this scenario means total lending of $720,000. After repaying the existing $500,000, you have access to $220,000 in usable equity, sufficient to fund a deposit and settlement costs on an investment property purchase.

When you use equity to fund a deposit, the lender treats the combined exposure across both properties as a single assessment. Your borrowing capacity is calculated on your total income, total debt and total living expenses, and the serviceability test applies to the combined loan amount. The lender will also assess rental income from the investment property, though most apply a discount of 20 per cent to account for vacancy and maintenance periods.

Refinancing your existing home loan to release equity is a common strategy, though it converts a portion of your owner-occupied debt into investment debt. Interest on borrowings used to acquire or hold an investment property remains deductible, but interest on borrowings for private purposes is not, regardless of the security provided. Structuring the loans correctly at the outset is important, and splitting the refinance into two separate loan accounts can preserve the deductibility of the investment portion.

Deposit Requirements and Lenders Mortgage Insurance

LMI protects the lender in the event you default on the loan. The premium is calculated on a sliding scale based on the loan amount and LVR, and it is a one-time cost added to your loan balance or paid upfront at settlement. LMI does not reduce your obligation to repay the full loan amount. If the lender recovers a shortfall from the insurer, the insurer may pursue you for that amount.

For investment loans, LMI premiums are higher than for owner-occupied loans at the same LVR. A 10 per cent deposit on a $700,000 investment property, resulting in a 90 per cent LVR, might attract an LMI premium in the range of $20,000 to $30,000, depending on the lender and insurer. Some lenders cap investment lending at 90 per cent LVR, while others will lend up to 95 per cent in limited circumstances, though premiums at that level become prohibitive for most borrowers.

LMI is not a claimable expense for tax purposes in the year it is paid. The ATO treats LMI as a cost of borrowing, which means it must be deducted over the life of the loan or over five years, whichever is shorter. Stamp duty on the LMI premium, where applicable, is treated the same way.

What Happens When You Have Less Than 20 Per Cent

Borrowing at an LVR above 80 per cent is possible, but it requires a lender willing to accept the higher risk and a borrower able to meet stricter serviceability criteria. Lenders assess investment loan applications at the loan product rate plus the 3.0 percentage point buffer, and they typically shade rental income by 20 per cent. The combination of a higher interest rate, a higher assessment rate and reduced income recognition means your borrowing capacity at 90 per cent LVR is materially lower than at 80 per cent LVR, even before accounting for the LMI premium.

From 1 February 2026, lenders have been subject to a debt-to-income limit that restricts lending at a DTI ratio of six times or greater to no more than 20 per cent of new investor loans per quarter. If your total debt across all properties is more than six times your gross annual income, the lender may decline the application or reduce the loan amount to bring the ratio below that threshold. The DTI limit applies at the lender level, not the borrower level, so switching lenders does not circumvent the restriction if all lenders are managing to the same quota.

In many cases, waiting until you have saved or accumulated a 20 per cent deposit will result in lower overall costs and a higher loan amount than proceeding immediately with 10 or 15 per cent. The alternative is to purchase a lower-priced property or to bring in a guarantor, though guarantor arrangements carry their own risks and are generally not offered for investment lending by mainstream lenders.

Genuine Savings and Other Deposit Sources

Most lenders require at least 5 per cent of the purchase price to come from genuine savings, defined as funds held in your account for at least three months. Genuine savings can include term deposits, offset account balances, shares sold and held as cash, and regular savings accumulated over time. Funds received as a gift from a family member are not classified as genuine savings unless they have been held in your account for the required period, though some lenders will accept gifted funds in combination with a statutory declaration from the donor.

Equity released from an existing property is not classified as genuine savings, but it is still an acceptable source of deposit. The distinction matters primarily when the LVR is above 90 per cent, at which point most lenders require evidence of a savings history to demonstrate financial discipline. For investment loans at LVRs between 80 and 90 per cent, the genuine savings requirement is less commonly enforced, though policies vary by lender.

First home buyers purchasing an investment property, rather than an owner-occupied home, are not eligible for the First Home Owner Grant or stamp duty concessions in most states. Victoria does not offer a stamp duty concession on investment property purchases, and the First Home Owner Grant applies only to owner-occupied purchases of new or substantially renovated homes. Investors purchasing their first property receive no upfront government assistance, which increases the cash required at settlement.

Settlement Costs Beyond the Deposit

The deposit is the largest upfront cost, but it is not the only one. Settlement costs on an investment property purchase include stamp duty, conveyancing fees, building and pest inspections, loan establishment fees, and valuation fees. In Victoria, stamp duty is calculated on the full purchase price and is due at settlement. For a $650,000 investment property, stamp duty is approximately $34,000. Legal fees typically range from $1,500 to $3,000, and lender fees vary from zero to $800, depending on the product.

If you are borrowing above 80 per cent LVR, the LMI premium is an additional cost, either paid upfront or capitalised into the loan. Capitalising LMI reduces the cash required at settlement but increases the loan balance and the interest payable over the life of the loan. Some borrowers also incur costs for a buyer's agent, depreciation schedule or financial planning advice, though these are discretionary.

Budgeting for settlement costs in addition to the deposit is necessary to avoid a shortfall at the final stage of the transaction. A 20 per cent deposit on a $650,000 property is $130,000, but the total cash required at settlement is closer to $170,000 once stamp duty and other costs are included. If you are using equity rather than cash, the total amount you need to release is the combined figure, not the deposit alone.

Call one of our team or book an appointment at a time that works for you to discuss your investment loan options, borrowing capacity and whether releasing equity or building cash savings is the right approach for your next property purchase.

Frequently Asked Questions