Top Strategies to Fund Your Investment Property Deposit

How much deposit do you need for an investment property

Most lenders require a 20 per cent deposit for an investment property to avoid Lenders Mortgage Insurance. A deposit smaller than 20 per cent attracts LMI, which adds to your upfront costs and can reduce the number of lenders willing to approve your application. The difference between 15 per cent and 20 per cent on a property at current median prices in regional centres can mean paying several thousand dollars in insurance premiums that do not reduce your loan balance.

Consider a soldier posted to Townsville who wants to buy a rental property in Ipswich. At a deposit of 18 per cent, the loan amount sits above 80 per cent loan to value ratio. LMI applies, and the premium is capitalised into the loan. That increases both the loan amount and the monthly repayments. At 20 per cent, the same buyer avoids LMI entirely and has access to a broader range of investment loan options.

Genuine savings and the 90 per cent rule

If you are borrowing more than 80 per cent of the property value, lenders typically require at least five per cent of the purchase price to be held as genuine savings for a minimum of three months. Genuine savings are funds you have accumulated over time, demonstrated through account statements. This does not include proceeds from a recent sale, a gift that arrived last month, or funds borrowed on a credit card.

Some lenders will accept equity from your owner-occupied home in place of genuine savings. If you have lived in your current property for more than 12 months and its value has risen, you may be able to leverage that equity to meet the deposit and avoid showing a savings history. Not all lenders allow this structure, particularly when your total borrowing across both properties pushes your loan to value ratio above 85 per cent. The debt-to-income cap introduced in February means lenders are also checking how much you earn relative to how much you owe, and equity alone will not offset a high DTI.

Using equity from your current property

If you own a home with equity, you can use that equity as your deposit. Equity is the difference between what your property is worth and what you owe on it. Releasing equity means increasing the loan on your existing home and using the additional funds to purchase the investment property.

This approach removes the need to save a separate cash deposit, but it increases the debt secured against your home. Lenders assess your ability to service both loans together, so the rental income from the investment property becomes part of the calculation. Most lenders apply a discount to rental income, usually around 80 per cent, to account for vacancy and maintenance costs. That means a property renting for $500 per week is treated as though it earns $400 per week when the lender runs your serviceability.

If you are posted interstate and your current home is no longer your principal place of residence, the equity release may still be possible, but some lenders reclassify the original loan as an investment loan once you move out. That can affect the interest rate and the amount you can borrow. Equity release loans are a common way to fund a second property, but the structure needs to match your posting cycle and your plans for the original home.

Rental income and how lenders assess it

Lenders apply a shading rate to rental income, which reduces the amount they count towards your serviceability. The standard shading is 20 per cent, meaning only 80 per cent of the expected rent is used in the assessment. Some lenders reduce this further if the property is in a location with a high vacancy rate or if you have not yet secured a tenant.

The rental estimate usually comes from a property manager's appraisal or comparable listings in the same suburb. If the property is still under contract, lenders rely on an appraisal. Once settlement occurs and a lease is signed, the actual rent can be used. Until then, the lender takes a conservative view.

Interest rates on investment loans are typically higher than owner-occupied rates. The difference is usually between 0.30 and 0.50 percentage points depending on the lender and the loan structure. Fixed rates, variable rates, and interest-only options are all available, but each affects your serviceability and your repayment flexibility in different ways. If you plan to hold the property long term and want stable repayments during your next posting, a fixed rate can lock in your cost. If you expect to refinance or adjust your investment loan within two years, a variable rate avoids break costs.

Changes to negative gearing and what they mean for deposits

From 1 July 2027, properties purchased on or after 7:30pm AEST on 12 May 2026 will be subject to quarantined rental losses unless they qualify as eligible new builds. Losses on these properties can only be offset against other residential rental income or carried forward. They cannot be offset against salary or other income.

Properties held before that date and time, including those under contract awaiting settlement, are grandfathered under the existing rules. If you exchanged contracts before 12 May 2026, you can still claim rental losses against your salary under the current negative gearing rules.

For properties purchased between 12 May 2026 and 30 June 2027, there is a transitional period. You can negatively gear those properties under the old rules until 30 June 2027, after which the quarantine applies. If you are looking at an off-the-plan apartment or a house and land package that will not settle until later in the year, check whether the contract was exchanged before the announcement date. That determines which tax treatment applies.

Eligible new builds remain fully negatively gearable. To qualify, the property must be constructed on previously vacant land, or it must replace an existing dwelling and increase the total number of dwellings on the site. A knock-down rebuild that results in the same number of dwellings does not qualify. If a new build is occupied for more than 12 months before it is sold to you as an investor, it loses eligibility.

The change does not affect your ability to borrow, but it does affect your cash flow once you own the property. A negatively geared property that cannot offset losses against your salary will cost more each year after 1 July 2027. That reduces the attractiveness of holding a loss-making property unless you have other rental income or expect capital growth to outweigh the cost. When you calculate your deposit, factor in whether you will need a larger buffer to cover ongoing expenses without the tax offset.

Stamp duty and other upfront costs

Stamp duty on an investment property is higher than on an owner-occupied home in most states. Concessions available to first home buyers do not apply to investment purchases. The duty is calculated on the purchase price and is due at settlement, so it must be included in your upfront cost calculation alongside the deposit and any LMI.

Other costs include building and pest inspections, conveyancing fees, loan application fees, and any borrowing costs if you are using a line of credit or redraw to fund part of the deposit. If you are buying in a strata scheme, budget for body corporate fees from settlement. These fees are ongoing, but the first quarter is often paid in advance.

Some lenders allow you to capitalise stamp duty into the loan if your loan to value ratio remains below 90 per cent. This increases your loan amount and your repayments, but it avoids the need to hold additional cash at settlement. If your deposit is already tight, this option can help, but it also reduces your equity from day one.

Serviceability buffers and debt-to-income caps

Lenders add a buffer of three percentage points to the interest rate when calculating whether you can afford the loan. If the variable rate on the loan is 6.50 per cent, the lender assesses your repayments at 9.50 per cent. This buffer is set by APRA and applies to all lenders.

From February, lenders are also subject to a debt-to-income cap. No more than 20 per cent of new investor loans can be written at a DTI of six times or greater. If your total debt across all loans is more than six times your gross annual income, some lenders will decline your application regardless of your deposit size. Others may approve it but charge a higher rate or require additional equity.

For Army members with allowances that form a significant part of total income, this can create issues. Some lenders include allowances in their income assessment, others do not. If your base salary is used but your allowances are excluded, your borrowing capacity drops. Low deposit loans and high-LVR structures are more difficult to obtain when the DTI calculation is tight.

Using family guarantees to reduce the deposit

A family guarantee allows a parent or sibling to use equity in their own property to support your application. The guarantee reduces the effective LVR, which can eliminate LMI and allow you to borrow with a deposit smaller than 20 per cent.

The guarantor does not hand over cash. Instead, they provide security over part of their property, usually up to the amount needed to bring your LVR down to 80 per cent. Once you have paid down enough of your loan or the property has increased in value, the guarantee can be removed.

This structure works if the guarantor has enough equity and is comfortable with the obligation. The guarantor is liable if you default, so lenders assess their financial position as well as yours. Not all lenders offer guarantees for investment property purchases, and those that do often require the guarantor to obtain independent legal advice before proceeding. Guarantor loans are most common for first home buyers, but they can be used for investment purchases where the structure fits.

Building the deposit while posted

Saving a deposit while posted can be difficult if you are paying rent in a high-cost location or supporting a family. Salary sacrificing into a mortgage offset account or a high-interest savings account builds the required balance over time. Some members use the Defence Home Ownership Assistance Scheme subsidy to reduce the cost of their owner-occupied loan, which frees up income to direct towards an investment deposit.

Another option is to hold off on the investment purchase until you receive a posting allowance or a one-off payment such as a retention bonus. These lump sums can be treated as genuine savings if they are held in your account for the required period. If you receive the payment less than three months before applying for the loan, some lenders will still accept it if you can show a consistent savings pattern in the months leading up to the payment.

If your current home is in a location where you will not return, converting it to an investment property when you are posted can be more efficient than selling and starting again. You avoid stamp duty on a new purchase, and you retain the equity you have already built. The loan on that property may need to be refinanced to an investment loan rate, and you will need to meet serviceability for both that loan and any new loan for a property in your next location.

Choosing between principal and interest or interest-only

Interest-only repayments reduce your monthly cost, which can help with cash flow if you are holding a negatively geared property. The loan balance does not reduce during the interest-only period, so you are relying on capital growth to build equity.

Principal and interest repayments are higher each month, but the loan balance decreases over time. This structure improves your equity position and reduces the risk if property values stagnate. Lenders assess interest-only loans more strictly, particularly for high-LVR applications, because the borrower is not paying down the debt.

If your goal is to build a portfolio and you plan to refinance or sell within five years, interest-only can work. If you are holding the property for 10 years or more and want to reduce debt before you leave the Army, principal and interest is the more reliable structure. The decision affects your deposit indirectly because it changes how much you can borrow and how much cash flow you need to support the loan once it settles.

Call one of our team or book an appointment at a time that works for you. We work with lenders who understand ADF income structures, deployment cycles, and the way postings affect your borrowing capacity. Whether you are using equity, building savings, or structuring a guarantee, we will make sure the loan fits your situation and the deposit is used in the most efficient way.

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