What if you could buy your first home with just a 5% deposit?
The Australian Government’s 5% Deposit Scheme, formerly known as the First Home Guarantee Scheme, makes this possible for eligible buyers. It allows you to purchase a home with a smaller deposit without paying Lenders Mortgage Insurance (LMI).
Since 1 October 2025, the scheme has expanded significantly. It now has no income caps, no limit on participating places and higher property price caps.
However, a smaller deposit doesn’t automatically mean an affordable mortgage. You still need to qualify for a home loan, manage your repayments and cover your buying costs.
In this comprehensive guide, you’ll discover how the First Home Guarantee Scheme works, who qualifies and how to apply. You’ll also learn about property price caps, participating lenders, government grants and the potential risks of buying with a smaller deposit.
Australian Government’s 5% Deposit Scheme Key Takeaways
| Feature | Details |
| Official scheme name | Australian Government 5% Deposit Scheme |
| Previous name | Home Guarantee Scheme / First Home Guarantee |
| Minimum deposit | 5% for eligible first home buyers |
| Single parent deposit | As little as 2% under the separate Single Parent Stream |
| Lenders Mortgage Insurance | Not required while scheme conditions are met |
| Income limits | No income caps |
| Place limits | No capped places or waiting list |
| Property price limits | Vary by state, territory and location |
| Eligible applicants | Australian citizens and permanent residents aged 18 or older who meet the relevant criteria |
| Property type | Eligible new or established homes, apartments, townhouses and certain land and building arrangements |
| Property use | Owner-occupied |
| Loan repayments | Principal and interest |
| Maximum loan term | Generally 30 years, with up to three additional years for eligible construction |
| Application | Through a participating lender |
| Loan approval | Subject to the lender’s credit and serviceability requirements |
What Is the First Home Guarantee Scheme?
The First Home Guarantee Scheme was introduced to help eligible Australians enter the property market without saving a traditional 20% deposit.
It formed part of the Australian Government’s former Home Guarantee Scheme. The programme allowed eligible first home buyers to purchase a property with a deposit as low as 5%.
On 1 October 2025, the government expanded and renamed the programme. It became the Australian Government 5% Deposit Scheme, with broader eligibility and higher property price caps.
The expanded scheme removed income limits and capped places. This means eligible buyers no longer need to compete for a limited allocation or meet a maximum household income.
The scheme also allows eligible buyers to avoid Lenders Mortgage Insurance, despite borrowing more than 80% of their property’s value.
How Does the Government Guarantee Work?
The scheme works through a government guarantee provided to your participating lender.
Normally, a lender may require Lenders Mortgage Insurance when you borrow more than 80% of a property’s value. This insurance protects the lender if you cannot repay your home loan.
Under the scheme, Housing Australia guarantees part of your home loan. This guarantee reduces the lender’s risk and allows eligible buyers to borrow with a smaller deposit without paying LMI.
Illustrative example: Buying a $700,000 property
| Item | Without the scheme | With the scheme |
| Property price | $700,000 | $700,000 |
| Deposit | $140,000 (20%) | $35,000 (5%) |
| Home loan | $560,000 | $665,000 |
| LMI | Usually not required | Not required while eligible |
| Deposit difference | — | $105,000 less |
In this example, the scheme reduces the required deposit by $105,000. However, you borrow an additional $105,000 compared with a 20% deposit.
You remain responsible for the entire home loan, including interest, repayments, fees and other costs. The government guarantee does not pay your mortgage or protect you from financial hardship.
It also doesn’t give you ownership of any additional part of your home. You own the property, while the guarantee supports your lender.
What Changed on 1 October 2025?
The expansion introduced several important changes to the former Home Guarantee Scheme.
| Feature | Previous arrangements | Expanded scheme |
| Income caps | Applied to eligible applicants | Removed |
| Number of places | Limited | Uncapped |
| Waiting lists | Could apply | No scheme waiting list |
| Property price caps | Lower limits | Increased limits |
| First home buyer eligibility | Subject to previous ownership rules | Generally first home buyers or people who haven’t owned property in Australia for 10 years |
| Regional First Home Buyer Guarantee | Separate stream | Closed to new applicants |
| LMI | Waived for eligible participants | Waived for eligible participants |
These changes broadened access to the scheme. However, lenders still assess your income, expenses, credit history and ability to repay the home loan.
Who Is Eligible for the First Home Guarantee Scheme?
To qualify for the 5% Deposit Scheme, you must meet the Australian Government’s eligibility criteria and your participating lender’s requirements.
The scheme has a general stream for eligible first home buyers and a separate stream for eligible single parents and legal guardians.
First Home Buyer Eligibility
You may qualify for the 5% deposit option if you meet the following conditions:
- You are at least 18 years old.
- You are an Australian citizen or permanent resident.
- You have saved a deposit of at least 5% of the property’s eligible value.
- You are a first home buyer or haven’t owned a home or land in Australia during the previous 10 years.
- You intend to live in the property as an owner-occupier.
- You are applying for an eligible principal and interest home loan.
- You are purchasing a property within the applicable price cap.
- You apply individually or jointly with one other eligible applicant.
- You meet your participating lender’s credit and serviceability requirements.
You don’t need to meet an income cap or secure a limited scheme place.
However, satisfying these conditions doesn’t guarantee that a lender will approve your home loan.
Can You Apply If You Previously Owned a Property?
Yes, you may still qualify if you previously owned a home or land in Australia.
The expanded scheme generally allows applicants who haven’t owned property in Australia during the previous 10 years to apply. This can help people who have experienced separation, financial setbacks or other significant life changes.
For example, you may have purchased a property with a former partner several years ago. If you meet the 10-year ownership requirement and the remaining eligibility conditions, you may qualify.
Your participating lender will assess your ownership history and confirm whether you meet the scheme’s requirements.
Can Couples Apply for the 5% Deposit Scheme?
Yes. Eligible couples can apply jointly for the scheme.
You can combine your income and savings when applying for a home loan. However, both applicants must meet the applicable scheme requirements.
You can also apply jointly with one other eligible person, such as a friend or family member. You don’t necessarily need to be married or in a de facto relationship.
Both applicants should understand their legal responsibilities before entering a joint mortgage. Each borrower may be responsible for the full outstanding loan if the other person stops making repayments.
Can Permanent Residents Apply?
Yes. Australian permanent residents can apply if they meet the remaining eligibility requirements.
Temporary visa holders who aren’t Australian citizens or permanent residents don’t qualify for the scheme.
If you’re uncertain about your residency status, your participating lender can help determine whether you meet the requirements.
Can You Buy an Investment Property?
No. The scheme is designed to help eligible buyers purchase a home to live in.
You must intend to occupy the property as your principal place of residence. You cannot use the guarantee to purchase a property solely for investment purposes.
You must also continue meeting the scheme’s ongoing occupancy requirements. If your circumstances change, contact your lender to understand how this could affect your guarantee.
How Much Deposit Do You Need for the First Home Guarantee Scheme?
The First Home Guarantee Scheme allows eligible first home buyers to purchase a property with a minimum 5% deposit.
Your required deposit depends on the property’s purchase price and the lender’s valuation.
Here is how much you need for different property prices:
| Property price | 5% deposit | 10% deposit | 20% deposit |
| $400,000 | $20,000 | $40,000 | $80,000 |
| $500,000 | $25,000 | $50,000 | $100,000 |
| $600,000 | $30,000 | $60,000 | $120,000 |
| $700,000 | $35,000 | $70,000 | $140,000 |
| $800,000 | $40,000 | $80,000 | $160,000 |
| $900,000 | $45,000 | $90,000 | $180,000 |
| $1,000,000 | $50,000 | $100,000 | $200,000 |
A smaller deposit can help you enter the property market sooner. However, it also means borrowing more and potentially paying more interest over your loan term.
Example: Buying a $600,000 Home With a 5% Deposit
Suppose you’ve found an established home priced at $600,000.
You’ve saved $30,000, which represents 5% of the purchase price. If you qualify for the scheme and receive loan approval, you could potentially purchase the property.
| Illustrative home purchase | Amount |
| Purchase price | $600,000 |
| Your deposit (5%) | $30,000 |
| Your home loan (95%) | $570,000 |
| Illustrative loan-to-value ratio (LVR) | 95% |
Excludes stamp duty, conveyancing, inspections and other buying costs.
Your lender will still assess your ability to repay the $570,000 mortgage. You must also have enough funds to cover your other purchase expenses.
Do You Need a 20% Deposit?
No. Eligible applicants can use the scheme without saving a traditional 20% deposit.
A 20% deposit can reduce your home loan, lower your interest costs and provide greater equity from settlement.
However, waiting until you save 20% may delay your purchase. You may also face changing property prices during that period.
The right deposit depends on your financial circumstances, borrowing capacity, savings and long-term plans.
First Home Guarantee Scheme Property Price Caps
The 5% Deposit Scheme property price caps determine the maximum eligible property price in each location.
The Australian Government increased these limits from 1 October 2025. The caps vary between states, territories, capital cities, regional centres and other areas.
Current property price caps, October 2026
| State / Territory | Capital city & major regional centres* | Other areas (regional/rural) |
| New South Wales | $1,500,000 | $800,000 |
| Victoria | $950,000 | $650,000 |
| Queensland | $1,000,000 | $700,000 |
| Western Australia | $850,000 | $600,000 |
| South Australia | $900,000 | $500,000 |
| Tasmania | $700,000 | $550,000 |
| Australian Capital Territory | $1,000,000 (all areas) | – |
| Northern Territory – Darwin (capital) | $750,000 | – |
| Northern Territory – rest of Territory | – | $600,000 |
| Jervis Bay Territory & Norfolk Island | $550,000 (all areas) | – |
| Christmas Island & Cocos (Keeling) Islands | $400,000 (all areas) | – |
You should confirm the applicable limit for your intended suburb or postcode before making an offer.
What Happens If the Property Exceeds the Price Cap?
You cannot use the scheme if the eligible property price exceeds the applicable location cap.
For example, suppose you’re buying a property in Perth for $900,000. The current cap for Perth is $850,000.
Even if you have a 5% deposit, that property won’t qualify under the scheme.
You could consider a lower-priced property within the cap or purchase without the government guarantee, subject to your lender’s requirements.
Does the Property Valuation Affect Eligibility?
Yes. Your lender’s valuation can affect your scheme eligibility and loan application.
Both the purchase price and the property’s assessed value must meet the applicable price cap.
For example, suppose you agree to buy a property for $800,000. However, your lender values the property at $860,000, above Perth’s $850,000 cap.
Your lender will need to determine how this affects your eligibility and financing. You shouldn’t assume that a contract price below the cap automatically qualifies.
You can use the official
property price cap information and postcode search
to check your intended location.
What Types of Properties Can You Buy?
The scheme supports several types of residential properties, giving eligible buyers flexibility when choosing their first home.
Depending on the property and lender’s requirements, you may be able to purchase:
- Established houses
- Newly built houses
- Apartments and units
- Townhouses
- House and land packages
- Off-the-plan properties
- Vacant land with an eligible building contract
Each property must meet the scheme’s requirements and applicable price cap.
Buying an Established Home
You can use the scheme to purchase an eligible established home.
This includes existing houses, apartments, units and townhouses. The property must meet the location’s price cap and owner-occupier requirements.
Established properties may offer an opportunity to move in sooner than some construction projects. However, you should consider the property’s condition, maintenance needs and potential renovation costs.
Buying a New Home
You can also purchase an eligible newly built property.
This may include a completed new house, apartment or townhouse. You can also consider eligible house and land packages.
Buying a new home may provide access to certain state-based first home buyer grants. However, eligibility depends on the relevant state government’s rules.
Building a Home
The 5% deposit scheme can also support eligible construction arrangements.
You may be able to purchase vacant land with a building contract or buy an eligible house and land package.
For eligible construction loans, the scheme generally allows up to three additional years beyond the standard 30-year loan term.
You should discuss the construction timeline, progress payments, builder requirements and potential cost overruns with your lender before committing.
Can You Buy Vacant Land?
You may qualify when purchasing vacant land with an eligible building contract.
The total land price and construction costs must remain within the applicable property price cap when separate contracts apply.
You must also meet the scheme’s construction and owner-occupier requirements.
Purchasing vacant land without an eligible building arrangement does not automatically qualify.
How to Apply for the First Home Guarantee Scheme
Applying for the First Home Guarantee Scheme involves checking your eligibility, selecting a participating lender and obtaining home loan approval.
You cannot apply directly to Housing Australia. Instead, you must apply through a participating lender as part of your home loan application. Here is a step by step guide to apply.
Step 1: Check Your Eligibility
Start by reviewing the scheme’s eligibility requirements.
Confirm that you meet the age, citizenship or residency, deposit, ownership history and owner-occupier conditions.
You should also check the property’s price cap and understand your likely borrowing capacity.
The Australian Government provides an online eligibility tool through its official 5% Deposit Scheme website
Step 2: Review Your Finances
Before approaching a lender, calculate your income, expenses, existing debts and savings.
Your deposit is only one part of your financial position. Lenders also examine your ability to manage mortgage repayments and unexpected expenses.
Prepare documents such as:
- Recent payslips
- Bank statements
- Identification documents
- Evidence of Australian citizenship or permanent residency
- Details of existing debts and financial commitments
- Records of your deposit savings
- Information about your employment and income
Self-employed applicants may need additional financial statements and tax documents.
Preparing these documents early can help your lender assess your application more efficiently.
Step 3: Choose a Participating Lender
You must apply through a lender participating in the scheme.
Participating lenders offer access to the government guarantee, but their loan products, interest rates, fees and lending criteria can differ.
Compare the following features before making your decision:
| Feature | What to consider |
| Interest rate | Compare the applicable rate and how it may change |
| Loan fees | Check application, ongoing and discharge fees |
| Repayment options | Review available repayment frequencies and flexibility |
| Offset account | Check whether an offset account is available and its fees |
| Redraw facility | Understand access to additional repayments |
| Loan features | Consider fixed, variable and split-rate options |
| Eligibility | Confirm the lender accepts your circumstances and property |
| Serviceability | Check the lender’s borrowing assessment requirements |
A lender may participate in the scheme but offer only selected products or have additional eligibility criteria.
You can find the current participating lender list through the Australian Government’s official scheme website
Step 4: Apply for Home Loan Pre-Approval
Once you’ve selected a participating lender, you can apply for home loan pre-approval.
Your lender will assess your financial circumstances and determine whether you may qualify for the scheme and a suitable loan amount.
Pre-approval can help you establish a realistic property budget before you start seriously searching.
However, pre-approval isn’t a guarantee of final approval. Your lender may still need to verify your financial circumstances, assess the property and complete additional checks.
Step 5: Find an Eligible Property
Once you have pre-approval, you can begin searching for a suitable home.
The Australian Government’s application guidance states that successful applicants generally have 90 days after pre-approval to find a home and sign a contract of sale. Your lender will confirm the relevant timeframe and conditions.
During your property search, check:
- The property’s purchase price against the location’s cap
- The lender’s valuation requirements
- The property’s condition and potential repair costs
- Your ongoing household expenses
- Any applicable state-based concessions or grants
Avoid making an unconditional offer before understanding your financing and contract obligations.
Step 6: Obtain Formal Home Loan Approval
After you find a property and sign a contract, your lender will complete its final assessment.
This may include a property valuation, verification of your financial documents and confirmation of scheme eligibility.
Your lender will also arrange the required government guarantee process.
If your application meets all requirements, your lender can issue formal approval and prepare your loan documents.
Step 7: Settle and Move Into Your Home
Once your lender has completed its requirements, you can proceed towards settlement.
Your conveyancer or solicitor will coordinate the legal transfer of the property. Your lender will arrange the loan funds and settlement process.
After settlement, you become the owner of the property and must meet your ongoing owner-occupier obligations under the scheme.
What Is the Single Parent Stream?
The Single Parent Stream is a separate part of the Australian Government 5% Deposit Scheme.
It supports eligible single parents and legal guardians who want to purchase a home with a deposit as low as 2%.
Unlike the general 5% deposit option, you don’t need to be a first home buyer to qualify for this stream. However, you must meet its specific eligibility and property ownership requirements.
Who Qualifies for the Single Parent Stream?
You may qualify if you:
- Are at least 18 years old.
- Are an Australian citizen or permanent resident.
- Are a single parent or legal guardian with at least one dependent.
- Have a deposit of at least 2%.
- Apply individually rather than jointly.
- Meet the relevant property price and owner-occupier requirements.
- Meet your participating lender’s credit and serviceability requirements.
You must also meet the stream’s rules regarding existing property interests.
How Much Deposit Do Single Parents Need?
The Single Parent Stream allows eligible applicants to purchase a home with a 2% deposit.
Illustrative example: $500,000 property:
| Item | Amount |
| Property price | $500,000 |
| Deposit | $10,000 |
| Home loan | $490,000 |
| Loan-to-value ratio | 98% |
This can significantly reduce the initial savings required to purchase a home.
However, borrowing 98% of a property’s value creates a larger mortgage. You should carefully assess your repayments and maintain a financial buffer for unexpected expenses.
How Much Can You Borrow Under the 5% Deposit Scheme?
The 5% Deposit Scheme doesn’t set one universal maximum borrowing amount.
Your borrowing capacity depends on your income, living expenses, existing debts, interest rate and the lender’s assessment criteria.
The property price cap also limits the value of eligible homes you can purchase.
What Do Lenders Consider?
Lenders assess your financial position to determine whether you can afford your mortgage repayments.
They may consider:
- Your gross and net income
- Your employment history and income stability
- Your household living expenses
- Your existing home loans and personal debts
- Your credit history
- Your dependants and financial commitments
- Your available deposit and savings history
- The property’s value and associated loan-to-value ratio
Your lender will also consider your ability to manage repayments if interest rates rise or your financial circumstances change.
Understanding the APRA Serviceability Buffer
The Australian Prudential Regulation Authority (APRA) requires banks to apply a mortgage serviceability buffer of at least three percentage points, unless APRA determines otherwise.
This means banks generally assess whether you can afford repayments at an interest rate at least three percentage points above your actual loan rate.
For example, if your proposed home loan has an interest rate of 6%, your lender would generally assess your ability to repay it at 9%.
This assessment helps lenders evaluate your ability to manage potential increases in repayments.
Passing this test doesn’t guarantee approval. Your lender must also consider your overall financial circumstances and its lending policies.
What Are the Costs of Buying a Home With a 5% Deposit?
A smaller deposit can reduce the amount you need to save before purchasing your home. However, it doesn’t eliminate the other costs involved in buying property.
You should budget for additional expenses before making an offer.
| Cost | Typical amount / range (AUD) |
| Stamp duty (transfer duty) | Often 3–5%+ of purchase price (varies by state and price) |
| Conveyancing / legal fees | Conveyancer: 1,500–$2,500Solicitor: 2,500–4,000+ |
| Building and pest inspections | Combined: $500–$800Larger/complex/strata: $800–$1,200+ |
| Loan application / establishment fees | $0–$600 (sometimes higher) |
| Property valuation | $300–$600 (often waived/discounted) |
| Mortgage registration fee | $150–$250 (varies by state) |
| Title registration (transfer) fee | $150–$300 (varies by state) |
| Building insurance | $1,000–$2,500+ per year (often paid upfront for 12 months at settlement) |
| Moving expenses | $1,000–$5,000+ |
| Maintenance / repairs fund | Guideline: 1–2% of property value per year, plus extra buffer for immediate works |
These costs vary depending on your location, lender and property.
Do You Still Pay Stamp Duty With the 5% Deposit Scheme?
Yes, you may still need to pay stamp duty.
The government guarantee doesn’t automatically exempt you from state or territory transfer duty.
However, eligible first home buyers may qualify for separate stamp duty concessions or exemptions.
For example, Queensland offers first home concession arrangements for eligible buyers. The applicable rules depend on the property’s value, transaction date and your circumstances.
You should check the relevant state revenue office before calculating your total purchase costs.
Can You Use Your First Home Owner Grant as a Deposit?
You may be able to use an eligible First Home Owner Grant towards your home purchase, subject to the grant’s rules and payment arrangements.
The grant is separate from the 5% Deposit Scheme. You must satisfy both programmes’ requirements to receive both benefits.
For example, Queensland offers a $30,000 First Home Owner Grant for eligible new homes valued below $750,000, including land, under the rules applying from 1 July 2026. Established homes aren’t eligible for this grant.
You should confirm when the grant will be paid and whether your lender will accept it as part of your available funds.
Can You Use Your Superannuation for a 5% Deposit?
You may be able to use the First Home Super Saver (FHSS) scheme to help build your deposit.
The FHSS scheme allows eligible individuals to withdraw qualifying voluntary superannuation contributions, along with associated earnings, to purchase their first home.
The scheme generally permits eligible withdrawals of up to $15,000 in eligible contributions per financial year, with a total limit of $50,000 per person, subject to the applicable rules.
If you’re buying with an eligible partner, each person may be able to use their own FHSS savings.
You must meet the FHSS eligibility requirements and follow the release process. You should arrange your withdrawal in time for your purchase and confirm how your lender will treat those funds.
First Home Guarantee Scheme vs a Traditional 20% Deposit
Choosing between a 5% deposit and a 20% deposit involves more than comparing the initial savings required.
Both options have different borrowing costs, risks and benefits.
| Feature | 5% deposit with the scheme | Traditional 20% deposit |
| Initial deposit | 5% | 20% |
| Home loan size | Larger | Smaller |
| Lenders Mortgage Insurance (LMI) | Not required while eligible | Usually not required |
| Time needed to save | Potentially shorter | Usually longer |
| Monthly repayments | Generally higher for the same property and rate | Generally lower |
| Interest costs | Potentially higher over the loan term | Potentially lower |
| Initial equity | Lower | Higher |
| Access to the property market | Potentially sooner | May require longer saving |
| Government guarantee | Yes, subject to scheme conditions | Not required |
Which Deposit Option Should You Consider?
A 5% deposit may suit buyers who have stable incomes but struggle to save a larger deposit while paying rent.
It can also help eligible buyers purchase a home earlier, without waiting to reach a 20% savings target.
A 20% deposit reduces the amount you borrow and gives you more equity from the beginning. It may also provide greater flexibility if property values decline.
However, the time needed to save a larger deposit can affect your overall financial position. Property prices, rent and other expenses may change while you’re saving.
Your decision should account for your borrowing capacity, repayment comfort, emergency savings and expected ownership costs.
What Are the Advantages of the First Home Guarantee Scheme?
The First Home Guarantee Scheme can help eligible Australians overcome some of the biggest barriers to home ownership.
However, understanding its advantages also means recognising its limitations.
1. Buy a Home With a Smaller Deposit
Saving a 20% deposit can take years, especially when you’re paying rent and managing everyday expenses.
The scheme reduces the minimum deposit to 5% for eligible first home buyers.
This can help you enter the property market earlier, provided you can afford the mortgage and other purchase costs.
2. Avoid Lenders Mortgage Insurance
One of the scheme’s main benefits is the ability to avoid Lenders Mortgage Insurance.
Normally, lenders may require LMI when your deposit is below 20%. This insurance protects the lender against certain losses if you default on your mortgage.
The scheme’s government guarantee allows eligible borrowers to avoid this additional expense.
However, the guarantee doesn’t protect you against default or remove your responsibility for the entire loan.
3. No Income Caps
The expanded scheme removed income caps from 1 October 2025.
This means eligible first home buyers no longer need to fall below a maximum annual income to participate.
You must still demonstrate sufficient income and meet your lender’s borrowing requirements.
4. No Capped Places or Waiting Lists
The scheme no longer limits the number of eligible applicants through a capped allocation of places.
You can apply when you’re financially ready, subject to the scheme’s rules and participating lender requirements.
However, you may still need time to prepare your documents, obtain pre-approval and find an eligible property.
5. Greater Property Choice
Higher property price caps have expanded the range of homes eligible buyers can consider.
The scheme also supports eligible established homes, new builds, apartments, townhouses and certain land and construction arrangements.
This gives you more flexibility when choosing a property that suits your budget and lifestyle.
6. Access to Other First Home Buyer Benefits
The scheme can be used alongside certain state and territory first home buyer concessions and grants.
Depending on your circumstances, you may also qualify for the First Home Super Saver scheme.
Combining eligible benefits may reduce your overall upfront costs. However, each programme has separate eligibility requirements.
What Are the Risks of Buying a Home With a 5% Deposit?
A smaller deposit can help you purchase a property sooner. However, it also means starting your home ownership journey with less equity.
You should understand the potential financial risks before applying.
1. Larger Home Loan Repayments
When you contribute a smaller deposit, you need to borrow more money.
A larger mortgage generally means higher repayments when comparing loans with the same interest rate and term.
For example, a $570,000 home loan will generally require higher repayments than a $480,000 loan at the same interest rate.
You should calculate your repayments using realistic interest rate assumptions and allow room for future changes.
2. Higher Total Interest Costs
Borrowing more money can increase the total interest you pay over the life of your mortgage.
Your actual interest costs depend on your interest rate, loan term, repayment frequency and additional repayments.
Making extra repayments, when permitted by your loan conditions, may reduce your interest costs.
However, you should balance additional repayments against the need to maintain accessible emergency savings.
3. Limited Equity at the Beginning
Equity is the difference between your property’s current market value and the amount you owe on your mortgage.
With a 5% deposit, your initial equity is relatively small.
For example, if you purchase a $600,000 property with a $30,000 deposit, your initial loan is $570,000.
Your starting equity is $30,000 before purchase costs and any changes in property value.
If property prices decline, your equity could shrink or become negative.
4. Risk of Negative Equity
Negative equity occurs when your outstanding mortgage exceeds your property’s market value.
This can become a problem if you need to sell your home while property prices are lower.
For example, suppose you purchase a property for $600,000 with a $570,000 mortgage. If its market value falls to $530,000, you could owe more than the property is worth.
You may need additional funds to repay the mortgage and cover selling costs.
This risk doesn’t mean a property will lose value. It highlights why you should consider your ability to manage unexpected changes.
5. Interest Rate Changes
A variable interest rate can increase or decrease during your mortgage term.
If your interest rate rises, your repayments may increase, depending on your loan structure and lender’s arrangements.
Even if you choose a fixed interest rate, your repayments may change when your fixed term ends.
You should consider whether your household budget can withstand higher repayments without relying on additional borrowing.
6. Less Financial Flexibility
A large mortgage can reduce the amount of money available for other financial goals.
You may have less flexibility to save for retirement, travel, education or other major expenses.
Unexpected events, such as reduced income, illness or urgent property repairs, can also put pressure on your finances.
Maintaining an emergency fund can help you manage these situations without immediately relying on additional credit.
7. Ongoing Scheme Obligations
The government guarantee comes with ongoing requirements.
You must comply with the scheme’s owner-occupier conditions and other applicable obligations.
If you stop meeting the requirements, the guarantee may no longer apply. Your lender may require LMI or other additional costs, depending on your loan and circumstances.
You should contact your lender before making significant changes to your living arrangements or property ownership.
Can You Refinance a Home Loan Under the 5% Deposit Scheme?
Yes, refinancing may be possible, but you must consider the scheme’s guarantee conditions.
If you refinance, the original government guarantee doesn’t automatically transfer to your new lender or loan.
Your new lender may need to confirm whether the refinance can retain the guarantee or whether you qualify for another arrangement.
You should also consider whether your outstanding mortgage, property valuation and financial circumstances meet the relevant requirements.
If you refinance outside the scheme, your new lender may require LMI if your loan-to-value ratio exceeds its acceptable threshold.
Before refinancing, compare the potential interest savings with any fees, additional costs and changes to your guarantee.
Can You Sell Your Home After Using the Scheme?
Yes, you can generally sell your home, but selling may affect the government guarantee.
When you sell, your outstanding mortgage must be repaid through settlement.
If the sale proceeds don’t cover the mortgage and associated costs, you may need to contribute additional funds.
If you sell before meeting the applicable scheme conditions, you should discuss the consequences with your lender.
You should also consider how selling affects any future application under a government home ownership scheme.
Does the First Home Guarantee Scheme Cover Your Deposit?
No. The government doesn’t contribute the 5% deposit on your behalf.
You must save the required deposit using your own eligible funds.
The government guarantee supports your lender by guaranteeing part of the loan, subject to the scheme’s terms.
You remain responsible for the mortgage repayments, interest, fees and other costs associated with owning the property.
How Does the Scheme Affect Your Credit Score?
Applying for a home loan can affect your credit report.
Lenders may make credit enquiries when assessing your application. Multiple applications within a short period may create additional credit enquiries.
The government guarantee itself doesn’t automatically improve your credit score or remove existing credit issues.
Your lender will assess your credit history as part of its normal lending process.
You should review your credit report and address any errors before applying for a mortgage.
How to Prepare for Buying Your First Home With a 5% Deposit
Buying your first home involves more than reaching your deposit target. You also need a sustainable budget, suitable financing and a clear understanding of your ongoing responsibilities.
Before committing to a property, consider the following priorities:
- Calculate your budget: Establish how much you can comfortably afford without placing unnecessary pressure on your household finances.
- Build your deposit: Save at least 5% of your intended property’s price, while accounting for additional purchase costs.
- Review your debts: Understand how your existing financial commitments could affect your borrowing capacity.
- Compare lenders: Examine interest rates, fees, loan features and lending requirements.
- Research property prices: Review recent sales and comparable properties in your preferred suburbs.
- Check the price cap: Confirm that the property qualifies under the scheme’s location-specific limits.
- Investigate government concessions: Check whether you’re eligible for additional grants, stamp duty concessions or other first home buyer support.
- Arrange pre-approval: Understand your likely borrowing capacity before making an offer.
- Inspect the property: Arrange suitable building and pest inspections and review relevant contract conditions.
- Maintain emergency savings: Keep funds available for unexpected expenses after settlement.
You should also consider how your financial circumstances could change over the next several years. A mortgage is a long-term commitment, and your budget should allow for more than your current expenses.
Conclusion: Is the First Home Guarantee Scheme Right for You?
The Australian Government 5% Deposit Scheme has changed how eligible Australians can enter the property market. By reducing the required deposit and removing Lenders Mortgage Insurance, it can make home ownership accessible sooner.
The removal of income caps and capped places has also expanded access. Eligible first home buyers can now consider a broader range of properties under the updated price limits.
However, buying with a smaller deposit means taking on a larger mortgage. You must still qualify for the loan, cover your purchase costs and manage your repayments over the long term.
A 5% deposit can reduce the time needed to save for a home. A larger deposit can reduce your borrowing costs and provide more equity from the beginning.
Understanding these differences, alongside your financial circumstances and future plans, is essential before purchasing your first home.
Ultimately, the scheme provides an opportunity to buy with less savings upfront. Your long-term financial position will depend on the property you purchase, the mortgage you choose and how comfortably you can manage home ownership.
Frequently Asked Questions About the First Home Guarantee Scheme
Can I buy a house with a 5% deposit in Australia?
Yes. Eligible first home buyers can purchase a property with a 5% deposit through the Australian Government 5% Deposit Scheme. You must meet the scheme’s eligibility criteria, property price caps and participating lender’s requirements.
Is the First Home Guarantee Scheme still available in 2026?
Yes. The scheme continues under its new name, the Australian Government 5% Deposit Scheme. Since 1 October 2025, it has operated with no income caps, no capped places and higher property price limits.
Do I need to pay LMI with a 5% deposit?
No. Eligible participants can avoid Lenders Mortgage Insurance through the scheme, even when borrowing more than 80% of the property’s value. You must continue meeting the scheme’s conditions to retain the guarantee.
Can I use the 5% Deposit Scheme with a partner?
Yes. Eligible first home buyers can apply individually or jointly with one other person. Both applicants must satisfy the applicable eligibility requirements and obtain approval from a participating lender.
Can I use the scheme if I have a HECS-HELP debt?
Yes. Having a HECS-HELP debt doesn’t automatically disqualify you from the scheme. However, your repayments and outstanding debt may affect your borrowing capacity, depending on the lender’s assessment.
Can casual employees apply for the First Home Guarantee Scheme?
Yes. Casual employees can apply if they meet the scheme’s eligibility requirements and the lender’s credit criteria. Your lender will assess your employment history, income consistency and ability to manage mortgage repayments.
Can self-employed borrowers apply for the 5% Deposit Scheme?
Yes. Self-employed borrowers can apply if they meet the relevant eligibility and lending requirements. You may need to provide additional documents, such as tax returns, financial statements and evidence of business income.
Can I buy an apartment with a 5% deposit?
Yes. Eligible apartments and units can qualify for the scheme if they meet the applicable property price cap and other requirements. Your lender will also assess the property’s valuation and suitability as security.
Can I use the scheme to buy a house and land package?
Yes. Eligible house and land packages can qualify if they meet the scheme’s requirements. The combined purchase and construction costs must remain within the applicable price cap.
Is there a minimum credit score for the First Home Guarantee Scheme?
The scheme doesn’t establish one universal minimum credit score for all applicants. Participating lenders apply their own credit policies and assess your overall financial position, including your credit history and repayment capacity.
Can I apply for the scheme if I already own an investment property?
Generally, you won’t qualify for the First Home Buyer Stream if you currently own property in Australia. However, applicants who haven’t owned property in Australia during the previous 10 years may qualify. The Single Parent Stream has separate eligibility rules.
Can I rent out my home after buying through the scheme?
The scheme requires you to occupy the property as your principal place of residence and meet ongoing owner-occupier conditions. Renting out the property may affect your eligibility and guarantee. You should contact your lender before changing how you use the property.
Can I use the First Home Guarantee Scheme more than once?
The general stream is intended for eligible first home buyers and certain people who haven’t owned property in Australia for 10 years. Previous participation may affect eligibility. Your lender must assess your circumstances against the current scheme rules.
Does the First Home Guarantee Scheme guarantee home loan approval?
No. The government guarantee reduces the lender’s risk associated with a smaller deposit. It doesn’t guarantee that you’ll qualify for a mortgage. You must still meet the lender’s income, credit, serviceability and property requirements.
Financial disclaimer: This article provides general information only and doesn’t constitute personal financial, legal or tax advice. Scheme rules, lender policies, property price caps and government concessions may change. Confirm current requirements with the relevant government agency and a participating lender before making financial commitments.
