The word "deposit" is used for two different things.

The two deposits

Loan to value ratio

LVR is the loan amount divided by the value of the property, written as a percentage. A $600,000 loan against a $750,000 property is an LVR of 80%.

The important detail is which value is used. The lender orders a valuation of the property, and the figure that valuation returns is what the LVR is calculated on. Where it comes in below the contract price, the lower figure applies, and the gap has to be covered from your own funds because the lender will not increase the loan to bridge it.

Valuations are not all the same exercise. Depending on the lender, the property and the loan, one of the following is ordered:

• An automated valuation model, generated by the lender's own system from sales and property data, with nobody attending the property.
• A desktop valuation, completed by a valuer working from data and imagery without attending in person.
• A short form valuation, where a valuer inspects the property and reports on a standard form.
• A long form valuation, a fuller report used for more complex properties.

Which type is ordered is the lender's decision, not yours, and it is not something you nominate.

LVR matters because it drives several things at once: whether lenders mortgage insurance applies, which products a lender will offer, and in many cases how closely the application is scrutinised.

Lenders mortgage insurance

LMI is an insurance policy. The single most important thing to understand about it is who it protects.

How it is charged

• It is a one off premium, calculated at the time the loan is settled.
• The amount varies with the LVR, the size of the loan, the lender and the insurer used. It rises sharply as LVR increases, and there is no single rate that applies across the market.
• Many lenders allow the premium to be added to the loan rather than paid in cash, which is called capitalising it. That reduces what you need at settlement, and it means you pay interest on the premium across the life of the loan.
• Refund and portability rules differ between insurers and lenders. Whether any part of a premium is refundable if you refinance or sell early is a question for the specific policy.

Situations where LMI is not charged

• Where the LVR is low enough that the lender does not require it. The common threshold in the market is 80%, though individual lender policies differ.
• Under the Australian Government 5% Deposit Scheme, where the government guarantee to the lender removes the need for it.
• Under Help to Buy, where the government's equity contribution reduces the loan enough that it is not payable.
• Where a lender offers a waiver to a particular group of borrowers. These exist, they are set by each lender rather than by regulation, and the eligible occupations and conditions change over time.

Where your deposit comes from

Lenders look at the source of the funds as well as the amount. The term you will hear is genuine savings, which generally means money you have accumulated yourself over a period of time rather than received in a lump.

How each of these is treated depends entirely on the individual lender's credit policy, and policies differ from each other and change over time:

• Savings built up in your own account over a period
• A gift from family, which is usually accompanied by a letter confirming it is not repayable
• An inheritance or a redundancy payment
• Funds released under the First Home Super Saver Scheme
• Sale proceeds from another asset
• Rent paid under a formal lease, which some lenders will count in place of savings

None of these are automatically accepted or automatically rejected. What matters is which lender is assessing the application and what their current policy says.

Guarantor arrangements

A family member can sometimes offer equity in their own property as additional security for your loan, which reduces the effective LVR and can remove the need for LMI. This is a limited guarantee over part of the debt, not a promise to make your repayments.

It creates real legal obligations for the guarantor. If the loan is not repaid, their property is exposed to the extent of the guarantee. Lenders generally require the guarantor to obtain independent legal advice before signing, and it is a decision the guarantor needs to make with their own adviser rather than on the basis of anything written here.