5% Deposit Scheme: The Essentials
The 5% Deposit Scheme (previously the First Home Guarantee) lets eligible first-home buyers purchase with a smaller deposit while part of the loan is government-guaranteed. For many buyers, that removes the need to pay Lenders’ Mortgage Insurance (LMI) and brings home ownership forward by years.
In practical terms, most first-home buyers need a minimum 5% deposit, and some single parents may qualify with as little as 2%. Recent updates have widened access by removing income caps and lifting price caps in certain areas, so more properties fall within reach.
Why Buying Sooner Can Make Sense
Start building equity instead of paying rent
Waiting to save a 20% deposit can take years. Meanwhile, prices and rents don’t sit still. Entering the market earlier means you begin paying down your own asset sooner and participating in potential capital growth rather than watching from the sidelines.
Save on upfront costs
If you’re eligible, the government guarantee means no LMI. That can represent a saving of many thousands of dollars at settlement—money you can keep for moving costs, furnishings, or a rainy-day buffer.
Lifestyle stability
Ownership isn’t only financial. Having your own place provides stability and the freedom to make the space truly yours.
What to Watch Out For
Higher repayments with a smaller deposit
Lower deposits mean higher Loan-to-Value Ratios (LVRs), so you’ll borrow more. That usually translates to a larger monthly repayment and more interest paid over the life of the loan. Build a buffer so rate changes or unexpected expenses don’t create stress.
Rates and product differences
Some lenders price high-LVR loans differently. Even with the guarantee, it pays to compare options, features and true long-term costs—not just the headline rate.
Market movements and equity
With less equity at the start, you’re more exposed to price dips. Consider your time horizon and factor in how long you plan to hold the property before relying on refinancing.
Property quality matters
Independent inspections are essential—particularly for new builds and off-the-plan. Reports have highlighted quality issues across a proportion of new housing stock, so proper due diligence is non-negotiable.
Smart Steps for First-Home Buyers
Know your numbers
Map out repayments across a range of interest rates, then add realistic living costs and a contingency fund. A sound budget is your first line of defence.
Compare, don’t rush
Not all lenders offer the scheme, and products vary. Assess the full package—rate, fees, offset/redraw, flexibility and suitability for your goals.
Buy the right property, not just any property
Consider size, location, transport, build quality and strata or body-corporate costs. If buying off-the-plan, scrutinise the developer’s track record and warranty provisions.
Bring in independent checks
Commission pre-purchase building and pest inspections, and for new builds, consider staged inspections. It’s a modest cost for potentially major risk reduction.
How NineDots Can Help
Every buyer and every property is unique. Book a free discovery call to walk through your situation and get a clear plan tailored to your budget, borrowing position and timeframe.
If you’re weighing up lender options or trying to decode features like offsets and fixed vs variable structures, our team can explain your choices in plain English and help you compare like-for-like—beyond the headline rate.
Taking on a new build or renovation? Ask about our Low Fee / No Fee Project Management approach to keep scope, quality and timelines on track, with staged checks to reduce risk.
Ready to take the next step? Get in touch or explore our packages to see how we can support you from pre-approval to keys-in-hand.
Further Reading
Independent updates and commentary on the scheme and market trends:
The Guardian – First home guarantee expansion,
ABC News – Federal Home Guarantee Scheme,
HPartners Group – 5% deposit insights,
Commonwealth Bank – Small deposit, big dream.
Frequently Asked Questions (FAQs)
1. What is the 5% Deposit Scheme?
The 5% Deposit Scheme allows eligible first-home buyers to purchase a home with as little as a 5% deposit while the government guarantees part of the loan, often removing the need for LMI.
2. Who is eligible for the 5% Deposit Scheme?
Australian citizens or permanent residents who have not owned property in the past 10 years and who meet local property price caps may apply. Specific criteria can vary—check current guidelines when you’re ready to purchase.
3. Can I avoid paying Lenders’ Mortgage Insurance with the 5% Deposit Scheme?
Yes. For eligible buyers, the government guarantee replaces the need for LMI, reducing upfront costs at settlement.
4. How much deposit do I need under the 5% Deposit Scheme?
Most first-home buyers need a minimum 5% deposit. Eligible single parents may qualify with a minimum 2% deposit.
5. Can I rent out a home bought under the 5% Deposit Scheme?
No. To remain eligible, the property must be owner-occupied. Check the current rules for how long you must live in the property.
6. Are there income caps for the 5% Deposit Scheme?
Income caps have been removed under the current settings, broadening access. Always verify the latest rules at the time you apply.
7. What types of properties are eligible?
New or existing homes—including some off-the-plan purchases—may be eligible if they fall under local price caps and meet scheme criteria.
8. How does the 5% Deposit Scheme help me move in sooner?
By lowering the deposit hurdle and removing LMI for eligible buyers, you can enter the market earlier instead of waiting years to accumulate a full 20% deposit.
9. How do I apply?
Apply through your bank or a mortgage broker as part of your pre-approval process. They’ll confirm eligibility and available places in the scheme.
10. What should I consider before using the scheme?
Plan for higher repayments due to a larger loan amount, compare interest rates and product features, verify property quality with independent inspections, and maintain a financial buffer.
Next Steps
If you’re considering the 5% Deposit Scheme, speak with Ninedots first. We’ll help you weigh the trade-offs, compare lending options, and choose a property strategy that suits your goals.
Contact us,
review our packages,
or explore our services.