Australian Government 5% Deposit Scheme for First Home Buyers

The Australian Government 5% Deposit Scheme (previously known as the Home Guarantee Scheme) is a federal government initiative that helps eligible Australians buy a home sooner with a low deposit. It supports eligible first home buyers with a minimum 5% deposit, and eligible single parents or legal guardians with a minimum 2% deposit, without paying Lenders Mortgage Insurance (LMI), subject to lender approval.

The Australian Government 5% Deposit Scheme includes the former:

• First Home Guarantee
• Regional First Home Buyer Guarantee
• Family Home Guarantee

The Scheme exists because many Australians can afford mortgage repayments but struggle to save a 20% deposit. Rather than giving buyers cash, the government guarantees part of the loan, allowing eligible buyers to purchase sooner without paying LMI.

Lenders Mortgage Insurance or LMI protects the lender, not you. It's usually payable when you buy with less than a 20% deposit and can add thousands of dollars to the cost of buying a home.

As a concept, LMI isn't good or bad. Many buyers try to avoid LMI by waiting until they've saved a 20% deposit. But that isn't always the cheapest option. If property prices rise while you're saving, the extra deposit required and the higher purchase price, can end up costing more than the LMI itself. The question is whether avoiding it is worth delaying your purchase. For eligible buyers, this scheme removes that cost altogether.

Under this federal scheme, the Australian Government guarantees part of your home loan to the lender. This allows eligible first home buyers to purchase with as little as a 5% deposit without paying LMI.

Eligible single parents and legal guardians may be able to buy with a 2% deposit, with the government guaranteeing a larger portion of the loan.

What's important to understand is the guarantee isn't cash, a grant or part of your deposit. You still borrow and repay the full home loan. The government simply guarantees part of the loan, reducing the lender's risk so eligible buyers can purchase with a smaller deposit.

So while the scheme can help you enter the property market sooner, you'll start with less equity because you're borrowing a larger proportion of the property's value.

There's strict eligibility criteria you need to meet to qualify for the scheme as a first home buyer, including:

• Being an Australian citizen or permanent resident and at least 18 years old.
• Never owned or had a legal interest in a residential property in Australia, alone or jointly, in the last 10 years.
• Planning to live in the house as an owner occupier.
• Purchasing a house priced at or below the location's price cap.
• Having a minimum 15% deposit.
• Applying for a mortgage with principal and interest repayments from a participating lender. Maximum loan term of 30 years, with an additional three years if you're building a home.

To qualify for the scheme as a single parent or guardian, you'll need to meet a range of eligibility criteria, including:

• Being an Australian citizen or permanent resident, at least 18 years old.
• Having a minimum deposit of 2%.
• Being a single parent or single legal guardian of one or more dependent children.
• Not having any other property interest once your new home settles.
• Buying a home in Australia priced at or below the location's price cap.
• Planning to live in the home as an owner-occupier (no investment properties).
• Applying for an owner-occupier home loan with Principal and Interest repayments from a Participating Lender, up to 30 years (plus up to three years to build a new home).
• Applying on your own (no joint applications).

Whether you're applying as a first home buyer or a single parent, you'll also need to meet your lender's loan eligibility criteria to qualify.

The government sets price caps to keep the scheme focused on entry-level properties. These are the caps that apply at the time of writing.

Always verify your specific postcode classification before committing to a purchase. Visit the Housing Australia website for the latest information.

Let's look at a simple example.

Imagine you're buying a $750,000 home in Melbourne with a 5% deposit.

Without the Australian Government 5% Deposit Scheme:

• Deposit: $37,500
• Loan amount: $712,500
• Estimated LMI: around $30,000 (usually added to your loan)
• Total loan: around $742,500
• Estimated monthly repayment at 6.5% over 30 years: around $4,693

With the Australian Government 5% Deposit Scheme:

• Deposit: $37,500
• Loan amount: $712,500
• LMI: $0
• Total loan: $712,500
• Estimated monthly repayment at 6.5% over 30 years: around $4,503

In this example, you'd avoid around $30,000 in LMI and reduce your repayments by around $190 a month. But the Scheme isn't automatically the right choice for everyone.

Because you're buying with a smaller deposit, you'll be borrowing a larger share of the property's value. That means you'll start with less equity and may have higher repayments than someone who purchased with a larger deposit.

It's also worth remembering that, unlike the First Home Owner Grant (FHOG), the Australian Government 5% Deposit Scheme doesn't increase your deposit or reduce the amount you borrow. The government simply guarantees part of your loan to the lender so eligible buyers can purchase with a smaller deposit without paying LMI.

That's why it's important to run the numbers. Compare your expected repayments, borrowing costs and long-term goals before deciding whether buying now with a smaller deposit, or waiting to save more, is the better option for you.

You don't apply directly with the Australian Government. Instead, you apply for an eligible home loan through a participating lender or mortgage broker. They'll assess whether you qualify for both the home loan and the Scheme, and reserve a Scheme place on your behalf if you're eligible.

Before applying, make sure you meet the Scheme's eligibility requirements, including the minimum deposit, property, residency and other eligibility criteria. You'll also need to buy an eligible property and intend to live in it as your principal place of residence.

Not every lender offers the Scheme. You can apply directly with a participating lender or work with a mortgage broker who can compare participating lenders and help you find a suitable home loan.

You'll typically need to provide:

• Proof of identity and citizenship or permanent residency.
• Evidence of your income.
• Bank statements showing your deposit and savings.
• Details of your existing debts and financial commitments.

Your lender will also ask you to complete the Scheme declarations as part of your home loan application.

Your participating lender or broker will assess your borrowing capacity, credit history and whether you meet the Scheme's eligibility requirements.

If you're eligible, the lender will reserve a Scheme place on your behalf as part of the application process. You don't need to submit a separate application to the government.

Keep in mind that meeting the Scheme's eligibility requirements doesn't automatically mean your home loan will be approved. You'll still need to satisfy your participating lender's lending and credit criteria.

Once you've signed a contract for an eligible property, your lender will finalise your loan approval and confirm the property meets the Scheme's requirements.

At settlement, the government guarantee allows you to purchase with a smaller deposit without paying LMI. You'll then need to move into the property within the required timeframe and use it as your principal place of residence.

The Scheme can help you buy sooner with a smaller deposit, but you'll still need to budget for other upfront costs, such as:

• Stamp duty (where applicable)
• Conveyancing and legal fees
• Building and pest inspections
• Moving costs

If you're unsure whether you're eligible or which participating lender is right for you, a mortgage broker or participating lender can help you understand your options before you apply.

The government guarantee generally stays in place for as long as your home loan remains eligible under the Scheme.

You don't need to repay the guarantee or replace it once you've built up more equity. It's simply a guarantee provided to your lender, not money you've borrowed from the government.

The guarantee may end if your loan is repaid, refinanced outside the Scheme, or you no longer meet the Scheme's ongoing requirements, such as living in the property as your principal place of residence.

Keep in mind that you're responsible for repaying your home loan and meeting all of your lender's obligations.

If you bought a property jointly and your relationship ends, you'll usually need to refinance if one person is taking over the home loan.

The remaining borrower will need to qualify for the loan on their own, and if you want to keep the government guarantee, you'll generally need to refinance with a participating lender and continue meeting the Scheme's eligibility requirements.

Because separation can affect both ownership and lending arrangements, it's worth speaking to your lender or mortgage broker before making any changes.

When you sell your home, your home loan is repaid from the sale proceeds and the government guarantee comes to an end.

You don't need to repay the guarantee or reimburse the government. It was never money paid to you or part of your deposit, it simply reduced the lender's risk while your loan was covered under the Scheme.

Once the loan is repaid, the government's involvement ends.

The guarantee protects the lender, not you. If you default and the sale of the property doesn't cover what you owe, the lender can make a claim against Housing Australia for the shortfall up to the guaranteed amount under the Scheme. You remain liable for any remaining debt not covered by the sale or the guarantee.

The Australian Government 5% Deposit Scheme isn't the right choice for everyone. You may want to consider other options if you:

• Are buying an investment property. The Scheme is only available for owner-occupied homes.
• Already have a 20% deposit or significant equity. If you don't need the government's guarantee, you may qualify for competitive home loan rates without using the Scheme.
• Are upgrading to your next home. The Scheme is designed to help eligible buyers purchase a home to live in, not to support upgrading to a larger property.
• May be better suited to the Help to Buy Scheme. If saving a 5% deposit is still out of reach and you're comfortable with shared equity, Help to Buy may be an option worth considering.
  

Like every financial product or scheme, there are benefits and trade-offs of the 5% Deposit Scheme. Whether it's right for you depends on your financial position, how long you plan to stay in the property, and whether buying sooner outweighs borrowing more.

• Buy a home sooner without waiting to save a 20% deposit.
• Avoid paying LMI, which can save eligible buyers thousands of dollars.
• Can be combined with other first home buyer incentives, such as the FHOG and stamp duty concessions (where eligible).

• You'll borrow more, which generally means higher monthly repayments than buying with a larger deposit.
• You'll start with less equity because you're financing a larger share of the property's value.
• You're more exposed to negative equity if property prices fall shortly after you buy.
• You'll still need to qualify for the home loan, even if you're eligible for the Scheme.

The Scheme can be a great way to buy sooner, but it's not automatically the best financial decision for everyone.

Before applying, ask yourself:

• Can you comfortably afford the repayments, even if interest rates rise?
• Would waiting another few years to save a larger deposit leave you better off, or you'll be chasing a moving target if property prices continue to rise?
• Are you comfortable starting with less equity in your home?
• Would having a larger deposit significantly reduce your repayments or improve the loan options available to you?
• Are the savings from avoiding LMI worth taking on a larger loan?

For some buyers, getting into the market earlier is the right move. For others, waiting and building a larger deposit may leave them in a stronger financial position. The answer depends on your circumstances, not just the size of your deposit.

The Australian Government 5% Deposit Scheme can often be combined with other federal and state incentives, helping eligible buyers reduce both their upfront costs and the deposit needed to purchase a home.

The First Home Owner Grant is a state and territory government grant available to eligible first home buyers purchasing or building a new home.

At the time of writing, the following First Home Owner Grant amounts are available across Australia. Eligibility rules, property requirements and price caps vary by state and territory.

Eligibility, property requirements and price caps vary by state and territory. Visit your state or territory's website for the latest information.

Yes. They're separate schemes with different eligibility requirements. If you're buying or building an eligible new home, you may be able to access both.

Most states and territories also offer stamp duty concessions or exemptions for eligible first home buyers. The value of these concessions can range from a few thousand dollars to tens of thousands, depending on where you buy and the property's value.

Because thresholds and eligibility rules change regularly, it's worth checking the latest rules in your state before signing a contract.

The FHSS Scheme lets eligible first home buyers make voluntary contributions to their super and later withdraw them to help fund a home deposit.

You can contribute up to $15,000 per financial year and withdraw up to $50,000 in eligible voluntary contributions. The FHSS can be used alongside the Australian Government 5% Deposit Scheme.

Help to Buy is the Australian Government's shared equity scheme. Instead of guaranteeing a portion of your loan, the government contributes toward the purchase price in exchange for an equity share in the home.

The government can contribute:

• Up to 40% of the purchase price for a new home.
• Up to 30% of the purchase price for an existing home.

Under this scheme, buyers only need a 2% deposit and do not pay LMI. However, unlike the Australian Government 5% Deposit Scheme, the government owns a share of the property and takes a matching share of any future capital gains when you sell.