Ever wondered why many first home buyers still pay thousands in LMI or Lenders Mortgage Insurance despite doing everything “right”? With high demand in Melbourne, new buyers and property investors often face borrowing limits and unexpected costs like LMI.
In this guide, we will cover all general questions for first-time home buyers, like what exactly LMI is, why it is charged, and how to avoid paying it. You’ll discover proven strategies to help you meet deposit requirements and use lender waivers, which could save you significant upfront costs.
You’ll also see how a full-service mortgage brokerage firm or an end-to-end property buyers agency can help align your financing and buying decisions for smarter outcomes.
What Is Lenders Mortgage Insurance (LMI)?
LMI is a one‑time insurance premium paid when your loan‑to‑value ratio (LVR) exceeds 80%. It protects the lender, not the borrower, in the event of default.
For example, on a $700,000 purchase with a $35,000 (5%) deposit, the LVR is 95%. LMI in this scenario could add about $31,000, and stamp duty around $24000, thereby increasing the overall out-of-pocket expense to acquire your first home in Victoria. The LMI goes slightly up to $37000 if the property is bought as an investment property.
The above data was obtained using the Westpac LMI and Stamp duty calculator, and you can have a go at a few scenarios yourself to find out what LMI expense would apply to you.
That’s why many first home buyers in Melbourne feel penalised and why avoiding LMI can make a real difference, especially when you have a small deposit.
Waiting to build on your deposit does not help as the property prices keep going up, which sets a higher goal for the deposit to be saved. Avoiding this LMI can significantly help the odds by entering the property market earlier rather than later.
Why Do Lenders Charge It?
Lenders assess risk with every application. An LVR over 80% increases the lender’s exposure, especially in volatile markets. LMI helps banks approve more low‑deposit loans while managing that risk.
In Melbourne, where cash-for-homes transactions are frequent, paying LMI often becomes part of the process. But the cost isn’t always necessary.
Four Ways to Reduce or Avoid LMI
1. Save a 20% Deposit
Staying at 80% LVR or below is the clearest way to avoid LMI completely. Use government grants such as the First Home Owner Grant to build your deposit faster.
2. Use a Guarantor or Equity Loan
A trusted relative can guarantee your loan using equity in their property. This can allow you to borrow up to 100% without paying LMI.
3. Seek Professional or First Home Buyer Waivers
Some lenders offer LMI waivers to eligible professionals (Accountants, Doctors and medical practitioners) or first home buyers with approved documentation. It’s worth checking with your mortgage broker for these options. As an ex-banker at the Commonwealth Bank of Australia, I would recommend going with a mortgage broker who has worked with a lot of home loan applications with LMI waivers for your specific profession.
4. Apply Through Government Schemes
Programs like the First Home Guarantee Scheme let you purchase with as little as 5% deposit and no LMI, though the places are limited each year.
Working with lending experts like Zenith Home Loans helps you explore a broad range of lenders along with all available financing paths, like government schemes, lender waivers, or customised finance strategies. This combination of recommendations from a mortgage broker and a buyer’s agent in Melbourne ensures your deposit is maximised.
Who Can Help You Avoid LMI
Preventing LMI is not always that easy, and this is why it is important to have the right mortgage broker helping you out to get the best out of your home loan application. I have known the lending team at Zenith Home Loans over the last few years, and they can assess your case, compare the lender’s terms across a wide range of lenders and structure your application in a way that will help to keep LMI to a minimum or even avoid it altogether. Many of my clients have sought their advice, and they made sure your documents all fall in line for a positive outcome.
At the same time, running an award-winning buyer’s agency in Melbourne – The Realta Property Buyers Agency, means helping the buyer enter the market early and at the right price point. By sourcing properties that align with your borrowing capacity, identifying options with stronger deposit leverage, and even giving you access to off-market opportunities, The Realta helps you make choices that work both financially and strategically. Working together, Zenith and The Realta provide a complete pathway to homeownership, covering both finance and property with confidence.
How Zenith Home Loans and The Realta Work Together
Buying your first home is never just about securing finance or just about choosing the right property; it’s about aligning both. That’s where the partnership between Zenith Home Loans and The Realta, a leading buyers agency in Melbourne, makes a real difference.
The team at Zenith Home Loans helps you structure the right loan, explore government schemes, and mitigate risks such as LMI. At the same time, The Realta ensures the property you choose matches your financial strategy, whether that means targeting growth areas, avoiding overpaying, or finding off-market opportunities.
By working together, these two specialists provide end-to-end support and give first-home buyers and investors a clear plan, smarter options, and the confidence to move forward without costly mistakes.
Conclusion
LMI might sound like an additional cost you can’t avoid, but for first-home buyers and investors, there’s potential to minimise and in some cases eliminate it. You can minimise the risk of paying LMI by holding a decent deposit, researching guarantor options and learning about government-backed schemes.
However, more critically, having partners who are experts gives you a significant advantage. Expert finance advisers at Zenith Home Loans ensure your loan structure is fit for the long term, while Melbourne’s premier buyers agency, The Realta, takes you to your ideal property based on your budget and goals. Between them, they streamline the process and make sure you take that next step into the Melbourne market with clarity and confidence.
About the Author
Rocky Rana (Real Estate Agent License Number: 091606L) is the Founder of The Realta Property Buyers Agency (Real Estate Agency License Number: 092102L) and the author of this blog. Rocky started his career as a Banker with the Commonwealth Bank of Australia, focusing on Data & Analytics and building strong expertise in the financial side of property transactions.
His dual expertise in finance and property provides him with an inside view of how purchasers can gain maximum borrowing capacity, minimise expenditures such as LMI, and achieve properties that offer long-term benefits. Currently, he assists first home buyers and investors to make informed and stress-free decisions in the competitive Melbourne property market.
