The Federal Government’s Home Guarantee Scheme lets eligible first-home buyers purchase with as little as a 5% deposit without paying LMI. It’s a powerful accelerator into the market — but there are trade-offs. Below we explain how it works, reasons to use it, risks to consider, and a worked example you can tweak with our calculators.
What is the 5% Deposit Home Guarantee?
- Under the First Home Guarantee (FHBG)guarantor for up to 15% of the property value, allowing a lender to offer up to 95% LVR with no LMI.
- Places are capped each financial year and loans are issued via participating lenders.
- You must live in the property (no investors) and meet income and price-cap limits.
Example: On a $600,000 property, a 5% deposit is $30,000. The Government guarantee covers up to 15% so you avoid LMI that could otherwise run into the tens of thousands.
Who can apply?
- First-home buyers aged 18+ who are Australian citizens or permanent residents.
- Owner-occupier purchase only.
- Meet income caps and regional price caps (varies by state/postcode).
Why it’s good
- No LMI: Save a significant upfront cost even with a small deposit.
- Faster entry: You don’t need to wait years to hit a 20% deposit.
- Stackable benefits: Can be combined with first-home grants or stamp duty concessions.
Why it can be risky
- Bigger loan, more interest: Borrowing 95% increases total interest over time.
- Limited lender set: Rates/fees may be less competitive than the wider market.
- Price caps restrict choice: In some suburbs you may struggle to find stock under the cap.
- Negative equity risk: With minimal equity, small price falls can put you underwater.
- Refinance caution: Moving lenders later can void the guarantee, potentially triggering LMI.
What to watch out for
- Interest rate trade-offs: Ask if the scheme rate differs from the lender’s standard offer.
- Valuation vs contract price: The guarantee is based on the valuation. A lower valuation can reduce borrowing headroom.
- Timing: Places are limited; consider applying early in the financial year.
- Eligibility drift: Stay within the owner-occ rules; renting it out too soon can breach terms.
Worked example – 20% vs 5% deposit (no LMI via guarantee)
| Scenario | 20% Deposit | 5% Deposit (Home Guarantee) |
|---|---|---|
| Property Value | $600,000 | $600,000 |
| Deposit | $120,000 (20%) | $30,000 (5%) |
| Loan Amount | $480,000 | $570,000 |
| LMI | $0 | $0 (Government guarantee) |
| Indicative Monthly Repayment* | $2,820 | $3,350 |
*Based on a 30-year term at 6% p.a. Use our Repayment Estimator to adjust rate, term and deposit.
How to decide
- Run the numbers: Model both scenarios (5% vs 10–20% deposit) in the Repayment Estimator.
- Check caps/eligibility: If your target suburb exceeds the cap, the scheme may not suit.
- Stress-test: Ensure repayments still work if rates rise 1–2%.
- Plan for 3–5 years: If you’ll hold long enough to build equity, the risk of being “stuck” is lower.
Related guides
- What is LMI? — how LMI works and typical costs.
- Debt-to-Income (DTI) — how banks assess your borrowing.
- Fixed vs Variable — choose the right structure for your risk profile.