Buying your first home with just 5% down sounds achievable, right? Here's the reality: the total cost of buying a home extends far beyond your deposit. First-time homebuyers usually incur additional fees equal to 8% to 12% of the purchase price, with closing costs alone averaging between $6,800 and $18,000 across the country.

There are particular difficulties in the property market in 2025. Just 24% of all home purchases are currently made by first-time purchasers, the lowest percentage since records have been kept since 1981. 

The typical first-time buyer has a median household income of $97,000 and is 38 years old. These figures demonstrate that becoming a homeowner now necessitates greater financial planning than in the past.

Understanding 5% Deposit Mortgages in 2025

95% of the value of your property can be borrowed with a 5% deposit mortgage, sometimes referred to as a 95% loan-to-value (LTV) mortgage. A deposit of $15,000 is required for a $300,000 house purchase, with the balance $285,000 being financed.

Compared to mortgages with greater deposits, current mortgage rates for loans with a 5% deposit are normally between 0.25% and 0.75% higher. Because lenders consider these loans to be more risky, you will pay more for them. While certain government-backed programs accept credit scores as low as 580, the majority of lenders require scores of 620 or above.

Many mortgages with a 5% deposit are supported by government mortgage guarantee programs. Through partial government support, these schemes incentivise lenders to provide low-deposit loans. The programs expand the number of 95% mortgages available in the market, but they do not directly help you as a borrower.

When comparing monthly payments, the trade-off becomes evident. The monthly payments for a $300,000 property with a 5% down payment are around $200 to $300 more than those for a home with a 20% down payment. The higher loan amount and required private mortgage insurance are the causes of this discrepancy.

Complete Breakdown of Home Buying Costs

Upfront Costs Beyond Your Deposit

• Loan-related fees typically include origination fees (0.5% to 1% of loan amount), appraisal fees ($300 to $600), and credit report fees (around $30). Your lender charges these fees to process and approve your mortgage application.
• Title and legal services protect your ownership rights. Title insurance costs approximately $1,000 for the average home, while attorney or escrow fees range from $800 to $1,200. Title searches ensure no outstanding liens or ownership disputes exist.
• Home inspection fees range from $300 to $600 but provide crucial information about your potential purchase. Professional inspectors identify structural issues, electrical problems, or other costly repairs you might face after closing.
• Prepaid expenses cover your first months of homeownership costs. You'll typically prepaid property taxes (2 to 8 months), homeowners insurance (first year), and mortgage interest from closing date to month-end. To see if your expected monthly repayments align with your income, it's worth using tools like servicing calculator during your planning phase.

Ongoing Homeownership Expenses

• Property taxes average 1.1% of a property's value annually. A $300,000 home would cost approximately $3,300 in yearly council rates, often built into your monthly repayments.
• Homeowners insurance ranges from $1,200 to $2,000 annually. This cost varies depending on property age, construction type, and local risk factors like flood zones.
• Private mortgage insurance (PMI) applies if you put down less than 20%. Expect PMI to cost 0.58% to 1.86% of your original loan per year, or $1,650 to $5,300 on a $285,000 loan.
• Home maintenance and repairs typically require 1% to 3% of your home’s value per year. Budgeting $3,000 to $9,000 helps cover regular upkeep and unexpected issues like a leaky roof or failing appliances.

The Hidden Costs First-Time Buyers Miss

• Moving costs vary widely. A local move might cost $800 to $2,500, while interstate relocations can surpass $5,000. Add costs for supplies, cleaning, and time off work.
• Utility setup and deposits add up quickly. Connecting electricity, water, gas, and internet often requires deposits totalling $500 to $1,500, especially if you’re moving into a newly built property.
• Immediate renovations or upgrades are common. Whether it’s repainting, replacing outdated fittings, or buying appliances, expect to spend $2,000 to $5,000 early on.
• Property tax adjustments at closing may require you to reimburse the seller for prepaid taxes. This depends on local rates and the time of year you buy.

5% Deposit vs Higher Down Payments: Cost Comparison

*Based on 6.5% interest rate, includes principal, interest, taxes, and insurance

The 5% deposit option costs $440 more monthly than the 20% deposit scenario. Over five years, this difference totals $26,400. However, saving an additional $45,000 for the larger deposit might take years, during which home prices could increase significantly.

PMI removal occurs automatically when your loan balance reaches 78% of the original home value. With regular payments and modest appreciation, most 5% deposit buyers eliminate PMI within 7 to 10 years.

Strategies to Minimise Your Home Buying Costs

Shopping for services significantly lowers closing expenses. Because origination costs and rates vary greatly, compare quotations from several lenders. Competitive pricing from various title companies, inspectors, and insurance providers can result in savings of thousands of dollars.

Another way to cut costs is through seller concessions. Sellers may agree to cover some of your closing costs in slower markets. FHA loans allowed up to 6% of the purchase price to be contributed by the seller, whereas conventional loans allow up to 3%.

Programs for first-time buyers provide assistance with closing costs, lower mortgage rates, or down payments. These benefits are offered by numerous governments, municipalities, and employers. Investigate nearby housing financing organisations and inquire with lenders about their services.

Prepaid interest expenses are impacted by the strategic timing of your closing. Closing early in the month minimises prepaid interest since you only pay from closing date to month-end.

Financial Preparation Checklist for 5% Deposit Buyers

Planning an emergency reserve becomes crucial when equity is low. Keep three to six months' worth of money aside from your closing costs and deposit. You shouldn't be forced into foreclosure due to crises, home maintenance, or job loss.

Optimising debt-to-income raises interest rates and the likelihood that a loan will be approved. Total loan payments should not exceed 43% of gross income, according to most lenders. Prior to qualifying for a mortgage, pay off credit cards and steer clear of additional debt.

Although it takes effort, raising one's credit score eventually results in cost savings. While scores below 620 can necessitate more expensive government-backed loans or mortgage insurance, scores above 740 are eligible for the best rates.

The approval procedure is accelerated by the preparation of documentation. Before you start looking for a home, gather two years' worth of tax returns, current pay stubs, bank statements, and employment verification letters.

Conclusion

The real cost of buying a home with a 5% deposit can go well beyond expectations, often reaching 8%–12% of the property price in the first year. Yet, for many, it remains a realistic route to homeownership, especially as property prices and rents continue to climb.

Understanding these expenses up front, creating a suitable budget, and utilising initiatives aimed at assisting first-time purchasers are crucial. Despite the difficult market conditions of today, a 5% deposit might be your ticket to homeownership if you prepare yourself.

Keep in mind that every market and circumstance is unique. Consult with qualified mortgage professionals and consider your long-term financial goals before committing to any home purchase strategy.

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