Should You Buy a Smaller Home Now or Wait Until You’ve Saved a Bigger Deposit?

Emily Elkhoury
Oct 3
3 min read

One of the biggest questions for first home buyers in South Australia is:

👉 Do I buy now with a smaller deposit and pay Lenders Mortgage Insurance (LMI)?

👉 Or do I wait until I’ve saved a 20% deposit and avoid LMI but risk property prices climbing higher in the meantime?

It’s not a one size fits all answer. Let’s unpack the pros and cons, then work through a real life example based on South Australian market conditions.

The Case for Buying Now (Smaller Deposit + LMI)

Pros:

Get into the market sooner You’re not chasing a moving target if prices keep rising.
Build equity earlier Even with LMI added, if the property grows in value, you benefit from that growth.
Lifestyle stability You get your own place now instead of renting while saving.
Government support Some buyers may also be eligible for the First Home Guarantee (which waives LMI with 5% deposits).

Cons:

Lenders Mortgage Insurance (LMI) On a 95% loan, this can add tens of thousands of dollars to your balance.
Higher repayments Smaller deposit = bigger loan.
Less buffer You’re more exposed to interest rate rises or financial shocks.

The Case for Waiting (20% Deposit)

Pros:

Avoid LMI entirely Saving 20% means no LMI, which can save you $20,000–$30,000 upfront.
Lower repayments A smaller loan means less monthly stress.
More equity from day one You start with 20% ownership of your home.

Cons:

Time to save In South Australia, the average time to s
Risk of rising prices If property prices rise 3–4% annually, the market could outrun your savings.
Lifestyle delay You might spend years renting when you could have been building wealth.

A Worked Example for South Australians

Let’s assume:

Current property price in Adelaide/SA: $1,000,000
Property growth rate: 4% annually (long-term average)
Loan term: 30 years at 4.99% interest
Saving time difference: 4.3 years (5% deposit) vs 7.2 years (20% deposit)

Scenario 1: Buy Now with 5% Deposit + LMI

Deposit: 5% of $1,000,000 = $50,000
Loan: 95% × $1,000,000 = $950,000
LMI (approx. 3% of loan) = $28,500 → Capitalised into loan
Total loan = $978,500
Monthly repayments @ 4.99% over 30 years ≈ $5,243

Scenario 2: Wait 7.2 Years for 20% Deposit

Future property price: $1,000,000 × (1.04)^7.2 ≈ $1,331,000
Deposit: 20% × $1,331,000 ≈ $266,200
Loan: 80% × $1,331,000 ≈ $1,064,800
Monthly repayments @ 4.99% over 30 years ≈ $5,707

Scenario	Deposit	Loan (incl. LMI)	Monthly Repayment
Buy now (5% + LMI)	$50,000	$978,500	~$5,243
Wait (20%)	$266,200	$1,064,800	~$5,707

What This Means

Even after adding LMI, buying now with 5% deposit results in:

Lower monthly repayments than waiting for 20% (because prices rise faster than savings).
An earlier start in the property market, building equity sooner.

However, the buyer with a 5% deposit has:

Much less equity upfront (5% vs 20%)
Higher long term interest cost (starting loan is larger)

The buyer with a 20% deposit avoids LMI, but risks paying $331,000 more for the property due to price growth while saving.

So, What’s Best for You?

If you’re confident in your income stability and can handle slightly higher repayments plus LMI, getting in sooner could pay off in a rising SA market.
If you’d prefer lower debt and want to avoid LMI entirely, then waiting for 20% may suit you better but be aware of the risk of rising prices.

Key Takeaway

LMI doesn’t always have to be a deterrent. For South Australians, paying LMI could be the ticket to entering the property market years earlier and avoiding being priced out, even if your deposit is small.

However:

Ensure you can comfortably service the loan with some buffer for interest rate rises.
Understand the long-term cost of a bigger loan vs smaller deposit.
Consider the lifestyle and flexibility benefits of buying now vs waiting.