Do you know what deposit you need for investment?

Most lenders require a minimum 10 per cent deposit for investment property, though 20 per cent is where the real shift happens.

The difference between those two figures affects more than just your upfront savings. At 10 per cent, you pay Lenders Mortgage Insurance, which typically adds several thousand dollars to the transaction. At 20 per cent, that cost disappears entirely and your loan structure opens up in ways that matter over the long term.

How the 80 per cent loan-to-value threshold changes your options

Reaching an 80 per cent loan-to-value ratio unlocks access to interest-only repayment structures more readily. Many lenders cap interest-only terms at five years for loans above 80 per cent LVR, but extend this to 10 years when you sit at or below that threshold. For an investor focused on cash flow rather than rapid equity build, that extension can reshape your monthly position considerably.

A 20 per cent deposit also brings you into the tier where lender pricing becomes more responsive. Rate discounts tend to widen once you move below 80 per cent LVR, not because lenders are rewarding effort but because the risk profile drops and their capital requirements shift. In our experience, the difference between an 85 per cent and a 75 per cent LVR loan can be anywhere from 0.15 to 0.40 per cent on the rate, depending on the lender and the property type.

What counts as genuine savings for an investment loan

Lenders assess deposits differently depending on whether the funds are classed as genuine savings or non-genuine savings. Genuine savings means money held in your name for at least three months in a standard savings account, term deposit, or offset account. Funds from the sale of another property, an inheritance, or a gift from family fall into the non-genuine category, though they are still accepted by most lenders.

The distinction matters when your deposit sits between 10 and 20 per cent. Some lenders require a portion of that deposit to be genuine savings, particularly for investors with limited prior borrowing history. If you are refinancing equity from an existing property to fund the investment deposit, that equity is treated as non-genuine, but your borrowing capacity is assessed based on your ability to service both loans simultaneously, which shifts the focus away from savings history and onto income.

Using equity instead of cash for your investor deposit

If you already own property, whether your home or another investment, you may be able to access investment loan funds without needing to save a separate cash deposit. Lenders will value your existing property and allow you to borrow against the equity, provided your combined loan-to-value ratio across all properties does not exceed their policy limit, which is typically 80 per cent for investors or 90 per cent if one property remains owner-occupied.

Consider a scenario where you own a home worth $750,000 with a remaining loan of $400,000. Your usable equity at 80 per cent LVR is $600,000 minus the existing loan, which leaves $200,000. From that, you would need to reserve funds for stamp duty, legal fees, and any other settlement costs, but the remainder can serve as your deposit for the investment property. This approach allows you to move without liquidating other assets or waiting to accumulate cash, though it does mean your total debt increases and your serviceability is tested across the combined exposure.

If you are considering this structure, it is worth reviewing your position with someone who can model the numbers across both properties and show you where the serviceability ceiling sits before you begin searching in earnest.

Lenders Mortgage Insurance and when it becomes unavoidable

Lenders Mortgage Insurance is charged when your loan-to-value ratio exceeds 80 per cent. The premium is calculated as a percentage of the loan amount and varies depending on the LVR and the lender's insurer. At 90 per cent LVR on a $500,000 loan, LMI might sit around $16,000 to $20,000. At 85 per cent, that figure drops to somewhere between $8,000 and $12,000.

The premium can be capitalised into the loan rather than paid upfront, but doing so increases your total borrowing and the interest you pay over time. Some lenders also apply stricter servicing buffers or limit certain loan features when LMI is required, particularly for investment lending. If your deposit sits just below 20 per cent, it is worth weighing the cost of delaying the purchase to save a little more against the opportunity cost of waiting while prices move or rental stock tightens.

How lenders assess rental income when calculating borrowing capacity

When you apply for an investment loan, lenders include a portion of the expected rental income in their serviceability calculation. Most lenders apply a shading factor, which means they only count 80 per cent of the rent to account for vacancy periods, maintenance, and rate fluctuations. Some lenders reduce this to 70 per cent depending on your total exposure or the property type.

If the property you are purchasing is expected to generate $600 per week in rent, the lender will typically assess your income as though it produces $480 per week. That figure is added to your employment income, then tested against your existing liabilities and the new loan repayment using the serviceability buffer, which currently sits at 3 percentage points above the product rate.

The debt-to-income cap introduced in February applies separately to investor lending, which means lenders may limit the number of applicants they approve at debt-to-income ratios of six times or higher. If your total debt including the new loan is approaching or exceeding six times your gross income, expect additional scrutiny and possibly a narrower range of lenders willing to proceed.

Settlement costs beyond the deposit

Your deposit is only part of what you need to have ready before settlement. Stamp duty in NSW is calculated on the full purchase price and is not reduced by any first home buyer concessions when the property is for investment. Legal fees, building and pest inspections, and lender establishment fees add another layer of cost that often catches people underprepared.

For a property purchased in a high-demand area like the Camden or Narellan growth corridor, where median values have climbed steadily, stamp duty alone can exceed $30,000 depending on the purchase price. If you are borrowing at 80 per cent LVR and your cash deposit is exactly 20 per cent, you will still need to find the settlement costs from savings or another source. Those costs cannot typically be added to the loan unless you are prepared to increase your LVR and trigger LMI.

Planning around these figures before you begin searching gives you a clearer picture of what is genuinely within reach and avoids the situation where a contract is signed but the numbers do not line up at settlement.

Does the type of property change deposit requirements

Some lenders apply higher deposit requirements or lower maximum LVR limits for certain property types. Apartments in buildings with more than six storeys, properties in regional or remote postcodes, or dwellings on land larger than a few hectares may be capped at 70 or 75 per cent LVR regardless of your financial position. Units in buildings with known cladding issues, or properties flagged for deferred maintenance by the body corporate, may be declined outright or require a larger deposit to proceed.

If you are considering a unit in a suburb close to transport and services, such as those closer to Sydney's outer metro fringe, it is worth confirming LVR limits with your broker before making an offer. Some lenders treat all units as higher risk, while others segment by size, location, and building age, which can open up more favourable terms if you are prepared to compare.

What happens if your deposit comes from multiple sources

Combining equity, genuine savings, and a family gift is common, but lenders will want to see evidence and an explanation for each component. Equity is verified through a valuation, genuine savings through bank statements, and gifts through a signed declaration from the donor confirming the funds are not a loan and do not need to be repaid.

If the gift exceeds a certain threshold, usually around $50,000, some lenders will require the donor to provide their own financial information or statutory declaration. This is not about questioning generosity but about satisfying responsible lending obligations and confirming that the applicant's ongoing servicing position is sound without relying on future financial support.

When the deposit is pieced together from several sources, allow extra time for the lender to review and verify each component. Missing documentation or unclear explanations can delay approval or lead to additional conditions being imposed before settlement.

The interaction between deposit size and tax planning

Interest on the portion of a loan used to acquire an investment property is deductible, but interest on funds borrowed for private purposes is not, even if the security is the investment property itself. Structuring your deposit and your borrowing correctly from the outset ensures you do not inadvertently limit your deductions down the line.

If you use equity from your home to fund part of the investment deposit and then redraw from your home loan later for personal use, that redrawn portion is not deductible, and the split between deductible and non-deductible debt becomes unclear. Setting up a separate loan split or a standalone facility for the investment from the beginning keeps the purpose of each borrowing clear and your deductions intact.

This is an area where structure matters more than enthusiasm, and it is worth seeking advice from both a broker and a tax specialist before you settle on the approach.

Call one of our team or book an appointment at a time that works for you. We will talk through your deposit position, borrowing capacity, and the lenders most suited to the property and strategy you have in mind, then structure the application so it reflects what you are actually trying to achieve.

Frequently Asked Questions