Oct 19, 2025
Australia's First Home Guarantee: How to Buy with a 5% Deposit and Save on LMI
The First Home Guarantee lets eligible buyers purchase a home with only a 5% deposit, saving them on Lenders Mortgage Insurance. Learn how to apply now.
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Good News for First Home Buyers: The First Home Guarantee
If you're an Australian first home buyer, or haven't owned property in over a decade, the Federal Government's latest initiative—the First Home Guarantee—is great news!
Historically, most buyers needed at least a 20% deposit or were forced to pay costly Lender's Mortgage Insurance (LMI). Under the First Home Guarantee, eligible buyers can now secure a property with a 5% deposit, with the government guaranteeing the remaining portion of the standard 20% required deposit.
What is Lender's Mortgage Insurance (LMI)?
LMI is a fee charged by banks to buyers when the loan amount exceeds 80% of the property's value (i.e., when the deposit is less than 20%).
Cost: LMI typically ranges between 1-5% of the total loan amount and is calculated based on how much you borrow.
Purpose: LMI is designed to cover losses incurred by the lender if the borrower defaults—it does not protect the borrower.
By requiring only a 5% deposit and having the government provide the guarantee, eligible first home buyers can bypass the 20% deposit threshold and avoid the entire cost of LMI, saving thousands of dollars and entering the market years sooner.
First Home Guarantee Eligibility
To be eligible for this Australian Government scheme, you must satisfy the following criteria:
Requirements | Details |
|---|---|
Residency | Must be an Australian Citizen or Permanent Resident. |
Prior Ownership | Must be a first home buyer OR a person who has not owned a property in Australia for at least the last 10 years. |
Occupancy | You must buy or build the home to live in (owner-occupier). Investment properties are not eligible. |
Age | Must be at least 18 years old. |
Property Cap | Purchase a property at or below the applicable property price caps. |
The government has recently removed the previous income cap and the limit on the number of places available. This means that, irrespective of your income, you can be eligible if you meet the other requirements. You should use the official Housing Australia tool to check the relevant property price caps for your area.
What Properties are Eligible?
There's a lot of flexibility in the type of property you can purchase under the First Home Guarantee scheme:
New or existing houses, townhouses, or apartments.
House and land packages.
Off-the-plan purchases.
Vacant land with a separate contract to build a home.
The big picture
While the scheme is fantastic for individual first home buyers, it's important to note that the scheme may have an unintended supply and demand impact on the wider Australian housing market:
Economic Impact | Mechanism |
|---|---|
Property Prices (Upward Pressure) | The scheme allows an influx of new buyers to enter the market years sooner. This increased competition drives demand, potentially leading to higher prices for properties underneath the relevant price caps. |
Rental Market (Downward Pressure) | Buyers exiting the rental market reduce overall rental demand. This reduction may result in a drop in rental prices, which is bad news for investors but good news for renters trying to save their own deposit. |
How to Apply for the First Home Guarantee
The government does not handle applications directly; you must apply through a participating lender.
Contact a Participating Lender: Start by contacting one of the scheme's approved lenders. You can find the full list of participating lenders here.
Lender Application: Complete the required application form and provide copies of your proof of residency or citizenship, along with a signed statutory declaration confirming eligibility.
Secure Your Guarantee: Your lender will liaise with Housing Australia (the government body administering the scheme) to confirm your First Home Guarantee place.
Timing is Key: It is highly advisable to start this process at the same time as you apply for home loan pre-approval, or ask your lender to update an existing pre-approval to reflect the guarantee.
Start Looking: Once your guarantee is confirmed, you can confidently begin looking for a home!
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