Reduced deposit requirement
The First Home Guarantee allows eligible buyers to purchase a home with just a 5% deposit and no Lenders’ Mortgage Insurance, significantly lowering upfront costs.
13 November, 2025
The 5% home deposit scheme explained
First Financial Team
Entering the property market can feel like a bridge too far for many Australians. Property prices are excessively high, and even at a base entry level of around $500K, the requirement for a 20% ($100K) deposit can take as much as a decade to save, and who knows where property prices will be in that time.
To soften the barriers to entry, the Australian Government has implemented a 5% home deposit scheme known as the First Home Guarantee. Under this scheme, eligible first-time home buyers can purchase a property with as little as a 5% deposit. In the case mentioned above, the required deposit drops from $100K to $25k, which can reduce the time it takes to save the deposit to 2-3 years.
“Financial planning can begin at any life stage. Our financial specialists will help guide you through major decisions — from buying your first home to building long-term wealth.”
How does it work, and who is eligible?
The scheme allows you to buy a home with a minimum 5% deposit and no Lenders’ Mortgage Insurance (LMI). The government guarantees part of your loan, up to the 20% deposit, so lenders waive the LMI requirement. This can save tens of thousands of dollars.
For example, on a $600,000 property, you’d need $30k upfront instead of $120K. This dramatically lowers the cash you need to buy a home.
When the First Home Guarantee launched, it had income limits, property price caps, and limited slots each year. As of 1 October 2025, those restrictions have been removed or expanded. Any first-time home buyer who meets the basic criteria can apply; there are no income caps, waitlist, or place quotas. Property value caps still apply to keep the focus on modest homes, but these caps have been raised in line with today’s market.
There’s also a separate Family Home Guarantee for eligible single parents, allowing them to buy with only a 2% deposit and no LMI.
Depending on your situation, you might also take advantage of:
- Government incentives: State first-home owner grants and stamp duty concessions can reduce upfront costs, and the federal First Home Super Saver Scheme lets you save part of your deposit via your super fund (up to $50,000) with tax benefits.
- Family guarantor loans: If a parent or close family member is willing to help, they can use their home equity to guarantee part of your loan. This allows you to buy with a small or even zero deposit and avoid LMI. Remember that the guarantor’s property is at risk if you can’t repay the loan.
There are considerations
Taking on a 95% home loan is a big commitment. We highly recommend speaking with a financial advisor, crunching the numbers, and planning carefully:
- Higher loan repayments: A smaller deposit means a much larger loan and higher mortgage repayments. Make sure you can comfortably afford the payments. For example, a 95% loan on a median-priced house could mean over $1,000 per week in repayments. You must budget a buffer for changing interest rates or other expenses that life can throw at you.
- Market conditions and equity: Extra buyer demand from the scheme could push up prices in entry-level markets
- With a 95% loan, you start with very little equity. If property values fall, you risk negative equity. Plan to hold your home long term so you can ride out any market swings.
The 5% deposit scheme has removed one of the most significant barriers to home ownership. However, a low deposit doesn’t change that you’re still taking on a large mortgage, so approach it wisely: do the sums, budget, and get advice. If you prepare well, you can take advantage of the scheme’s benefits, but seeking professional advice is advised, like with any investment.
“The 5% deposit scheme has removed one of the most significant barriers to home ownership — but a low deposit doesn’t change the fact that you’re still taking on a large mortgage, so approach it wisely.”
Talk to the financial specialists
Financial planning can begin at any life stage. In your 20s-40s, you’re building your foundations, which is when most people look to enter the property market. Our financial services will help guide you through significant life decisions, including maximising your income, building your wealth, superannuation, and insurance. Speak with us today, and we’ll help set you on a secure and achievable financial path.
Read more financial planning and goal-setting articles.
Takeways
Wider Eligibility from October 2025
Income caps and quotas have been removed, making the scheme more accessible to a broader range of first-time buyers, though property price caps still apply.
Risks require careful planning
A smaller deposit means higher loan repayments and greater exposure to market fluctuations. Buyers should plan for long-term ownership and financial stability.
Expert financial guidance matters
First Financial helps clients understand government schemes, optimise their financial position, and create a strategy for sustainable property ownership and future wealth growth.
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Frequently Asked Questions
What is the First Home Guarantee scheme?
The First Home Guarantee is an Australian Government initiative that allows eligible first-home buyers to purchase a property with as little as a 5% deposit and no Lenders’ Mortgage Insurance (LMI). The government guarantees up to 15% of the loan, effectively removing the need for a 20% deposit.
How does the scheme help first-time buyers?
It dramatically reduces the upfront deposit required — from around $100,000 on a $500,000 property to just $25,000 — making it possible for buyers to enter the market sooner, often within 2–3 years of saving.
Who is eligible for the First Home Guarantee?
As of October 2025, any first-time home buyer who meets the basic criteria can apply. Income caps, waiting lists, and annual limits have been removed, though property price caps still apply to ensure affordability.
What are the key benefits of the First Home Guarantee?
The main benefits include a lower deposit requirement, no LMI costs (which can save tens of thousands of dollars), and faster entry into the property market.
Are there other government support options for first-home buyers?
Yes. Buyers can also access state-based first-home owner grants, stamp duty concessions, and the First Home Super Saver Scheme, which lets them save for a deposit through their superannuation fund with tax advantages. Single parents may also qualify for the Family Home Guarantee, requiring only a 2% deposit.
What are the risks of buying with a 5% deposit?
A smaller deposit means a larger mortgage, higher repayments, and limited equity. If property prices drop, you could end up with negative equity. Planning for interest rate changes and committing to long-term ownership is important.
How can First Financial help me navigate the First Home Guarantee?
First Financial’s advisors can assess your eligibility, explain the scheme’s details, and help you structure your finances to take full advantage of the 5% deposit opportunity while minimising long-term financial risk.
What other financial services does First Financial offer to support home buyers?
Beyond property guidance, First Financial assists clients with comprehensive financial planning — including budgeting, wealth creation, superannuation management, and insurance — ensuring a stable and achievable long-term financial path.