How Can You Fund an Investment Property Deposit, Saving 20%?

By Liam Whinfield

If you’re reading this because you’re trying to work out how to save the full 20%, you’re probably still some time away from reaching it. The good news is that a 20% cash deposit is not your only option. LMI, additional income, genuine savings, usable equity and family support can all form part of the strategy.

Here's the thing though, if you're reading this because you're trying to work out how to save that 20%, it probably means you're still a little while off having it. Which is exactly why getting in sooner with a lower deposit, and paying Lenders Mortgage Insurance to do it, deserves to be taken seriously rather than avoided on principle. It's the first option below, and it's not the only one. There are several legitimate paths into an investment property, and which one suits you depends on where you're starting from.

1. Getting in sooner: treating LMI as a trade-off, not a failure

Lenders Mortgage Insurance (LMI) has a bad reputation, but it's worth thinking about clearly rather than avoiding, it kicks in once your loan is above 80% of the property value (exception: under certain eligibility criteria based on your career) and the premium rises steeply the smaller your deposit gets.

But here's the smarter way to look at it: paying LMI to buy sooner with a 10% deposit can, in some markets, cost less than the price growth you'd miss out on while spending another two or three years saving the extra 10%. That's the cost of waiting, and how much it stings depends entirely on what your specific market is doing, a market early in a growth cycle makes waiting expensive, a flat market makes it far less urgent (more on reading that in point 7). That comparison should also account for the larger loan, the extra interest, higher repayments, and the possibility that the property doesn't grow as expected, it's not a one-sided bet. LMI isn't the right call for everyone given how sharply premiums scale, but it's a genuine strategy, not a consolation prize for people who couldn't save enough. Run the numbers both ways before you dismiss it.

Pro Tip: the best spot to look at for a lower deposit and avoiding paying the least amount of LMI is 12% deposit or 88% Loan-to-value(LVR) ratio.

2. Take on a second job, and put it away straight into savings

If you're already working full-time, picking up a second job for a shift or two a week is one of the most direct ways to build a deposit faster, simply because that income doesn't need to cover your regular costs, your main job already does that. Whatever you take home from it, after tax, goes almost entirely into savings, once you've factored in any extra transport, meals or other costs that come with the extra shift.

Where you pick up that shift matters too. A lot of hospitality and retail roles pay higher penalty rates for weekend work, so choosing the right shift can make a meaningful difference to how quickly the savings build without working more hours. If you can get that same kind of pay bump through overtime at your main job instead, take that option, less admin, no second employer to manage. But if that's not available, a second job earning genuine penalty rates is a solid way to speed things up.

Personal Story: When I was saving for my first deposit working as a Postie, I worked overtime everyday and Sunday shifts to create those extra savings, which made my savings target achieved almost 6 months earlier. I also tried working at woolies but this was too much to handle and gave in after only 2 weeks. Find the sweet spot without working yourself into the ground.

3. Old-fashioned savings (and knowing what actually counts)

This is still the starting point for most first-time investors, so it's worth understanding the rules properly. Depending on the lender, the mortgage insurer and your LVR, you may need to demonstrate "genuine savings", often somewhere around 5% of the purchase price, held in your account and growing for a period before you apply. A lump sum that landed in your account last week doesn't always count the same way, even if it's real money.

If genuine savings are tight, some lenders will consider a satisfactory rental-payment history, commonly a clean, on-time track record through a licensed property manager, as an alternative, though the period required and the evidence they'll accept vary considerably by lender. It's exactly the kind of thing a broker can check across lenders rather than you finding out the hard way after you've fallen in love with a property.

4. Using equity in a property you already own

If you're already a homeowner, this is usually the fastest route into an investment property, and it's how most established investors add to their portfolio. Equity is simply the gap between what your home is worth and what you still owe on it. Most lenders will let you borrow up to 80% of your home's value without needing LMI, and the difference between that 80% figure and your current loan balance is what's usable as a deposit on the next purchase. CommBank's explainer walks through the mechanics well.

PS: you still need the serviceability from your income and rental income to service the equity to borrow - It’s not just free money!

Personal Story: With my first owner-occupied property, I maxed out my borrowing capacity that didn't leave any room to borrow the equity the property had, because how equity is borrowed matters just as much as how much of it you have. This is why I ended up renting it out in the end and using the income from my owner occupied. My original loan was ~$365k and value was at $620k. This left me with ~$130k worth of usable equity but not enough income to service the equity I needed to purchase an investment property.

Once I converted my own owner-occupied property into an investment. That helped improve my serviceability, the lender could now consider part of the rental income towards serviceability, and combined with the equity position, it gave me more options than I had while the property was purely owner-occupied. I was able to extract equity and use it as the deposit on a unit all while on a below average wage as a Postie (honestly a great lifestyle job with no prior skills needed and can still build wealth)

Pro Tip: If you purchased your existing property with LMI and your LVR goes back into LMI territory then you are unlikely having to pay the full LMI amount, usually just a top-up amount. This can be a strategy if your value hasn’t grown enough to support a deposit while maintaining an LVR under 80%.

5. Bringing in a guarantor

A family guarantee lets a parent (or potentially another family member) use the equity in their own home as additional security for your loan (or a term deposit as collateral), without handing over any cash. It typically covers just the gap between your deposit and a safe 80% LVR, which means no LMI and often no cash deposit required at all from you, though you'll still need funds for stamp duty and other costs.

Worth knowing: this works for investment property purchases too, not just first homes. Under Westpac's current Family Security Guarantee policy, an investment borrower can't already own another property at the time they apply, other lenders may have different eligibility rules, so it's worth checking. In practice, that means it tends to suit someone using a guarantor to buy their very first property, which then becomes the investment. It's a generous thing for a family member to offer, and it puts their home partially on the line, so it deserves a proper conversation about the worst case before anyone signs anything.

Just remember you will need to borrow 100% of the purchase price of the home. So the price you can pay for a property is only what you can borrow plus costs.

6. A gifted deposit, done properly

If family is able to gift you money outright rather than acting as guarantor, most lenders will still want a signed gift letter confirming it's non-repayable, and, depending on your deposit size, some genuine savings of your own alongside it. It's a straightforward path, but get the paperwork right from the start. Lenders don't love surprises, and a gift that looks like an undisclosed loan can cause real problems at approval stage.

- Using multiple strategies -

Here are some ways these strategies stack together:

Second job + LMI: Instead of using the extra income to chase a full 20% deposit, you use it to get to 10% faster and then buy sooner with LMI, treating the growth you'd otherwise miss as the thing you're racing against, not the deposit itself.

Gifted deposit + genuine savings: Lenders often want to see the buyer contribute something themselves, even with a gift on the table. Pairing a family gift with a smaller pool of your own documented savings tends to make for a cleaner application than a gift alone.

First home → convert → extract equity: This is the strategy I used unintentionally:  I lived in it, then once there was equity, I converted to an investment, use that equity as the deposit on the next purchase, There are certain eligibility requirements to meet if you use first home buyer benefits like the 5% deposit scheme and stamp duty concessions. Also, consider that you might be moving in and out of the home and rentals.

Second job + gifted deposit: Where a gift covers a big chunk but not all of it, a second job for six to twelve months can close the remaining gap without needing to stretch the gift further.

Conclusion

There's no single "right" way to fund a deposit, there's the way that fits your situation, your timeline, your market, and how much risk you and your family are comfortable carrying. Here's roughly what each path can look like when you put numbers to it:

• Using a 10% deposit and paying LMI. A $900k purchase needs $180k for a 20% deposit, but only $90k to get in at 10%. If it takes two more years to save that extra $90k, and the market's moving even 6% a year, the property could be worth $1,010,000+ by the time you get there, so the LMI premium on the smaller deposit may end up cheaper than the growth you missed waiting. PS: LMI is added to the loan balance on settlement in most cases.

• A second job. A full 6-7 hour Sunday shift in hospitality on top of a full-time role might bring in an extra $350 or so a week after tax and costs. Kept purely for the deposit, that's around $18–$19k a year, enough to pull the timeline forward by a year or more.

• Genuine savings. Setting aside $800 a month into a dedicated account for three years builds a documented savings pattern well beyond most lenders' minimum, which strengthens the application regardless of the exact figure a particular lender asks for.

• Using equity. A home bought for $400k with a $350k loan is worth $550k 5 years later, with the loan down to $300k. That's $250k of equity, and with most lenders capping borrowing at 80% of value, roughly $140k of that could be usable as a deposit and costs on the next purchase, without touching a dollar of savings.

• A guarantor. A first-time buyer with a $25k deposit (5% on a $500k purchase) uses a parent's home as a limited guarantee to cover the gap to 80% LVR. That avoids LMI entirely and gets them into the property years before they'd have saved the full $50k plus stamp duty and other costs, needed for a 10% deposit on their own. There are some implications you and the family guarantors will need legal advice before opting in for this one.

• A gifted deposit. Parents gift $50k toward a $600k purchase. Paired with a signed gift letter or statuary declaration and $20,000 of the buyer's own genuine savings, the lender treats it as a straightforward deposit rather than raising questions about undisclosed debt.

• First home, then convert. Someone buys a $550k, lives in it for four years while it grows to $700k, then moves out, rents it out, and buys their next place. See scenario above for full breakdown. Added potential benefit of the 6-year-rule!

If you're weighing up which of these makes sense for where you're at, I'm always happy to talk it through, no pressure, just a conversation about what's actually achievable for your situation.

Talk soon

Liam

This article contains general information only and does not consider your objectives, financial situation or needs. Lending criteria, fees, LMI requirements and eligibility vary between lenders. Property, taxation and financial outcomes depend on individual circumstances. Consider obtaining independent legal, taxation and financial advice where appropriate.