First Home Guarantee Explained: How to Buy With a 5% Deposit in Australia

Saving a 20% deposit to buy your first home in Australia can feel like a moving target — especially with rising property prices across many parts of the country. The First Home Guarantee is one of the most powerful government schemes available to help eligible Australians get into the property market sooner, with as little as a 5% deposit and without paying Lenders Mortgage Insurance (LMI).

But what exactly is the First Home Guarantee, how does it work, and are you eligible? This guide explains everything you need to know about the First Home Guarantee in plain, simple Australian English — so you can make an informed decision about whether it is the right path for you.

Disclaimer: This article is general and educational in nature. It does not constitute financial advice. Always speak with a licensed mortgage broker or financial adviser before making any borrowing decisions.

What Is the First Home Guarantee?

The First Home Guarantee — formerly known as the First Home Loan Deposit Scheme (FHLDS) — is an Australian Government initiative administered by the National Housing Finance and Investment Corporation (NHFIC). It allows eligible first home buyers to purchase a residential property with a deposit of as little as 5%, without needing to pay Lenders Mortgage Insurance (LMI).

Normally, when a borrower has a deposit of less than 20% of a property’s purchase price, the lender requires LMI — an insurance policy that protects the lender but is paid for by the borrower. LMI can cost anywhere from several thousand to tens of thousands of dollars depending on the loan size. The First Home Guarantee removes this requirement by having the Australian Government act as guarantor for up to 15% of the property’s purchase price.

This means that under the First Home Guarantee, the government does not pay any portion of your deposit or your loan — it simply guarantees the gap between your 5% deposit and the standard 20% threshold, so your lender does not require LMI.

For the most current and official information, visit the NHFIC First Home Guarantee page.

How Does the First Home Guarantee Work?

Here is a step-by-step explanation of how the First Home Guarantee works in practice:

1. You check your eligibility for the First Home Guarantee — including income caps, property price limits, and first home buyer status requirements.
2. You find a participating lender — not all lenders are approved under the First Home Guarantee. A list of participating lenders is available on the NHFIC website.
3. You apply for the First Home Guarantee through your chosen participating lender or a participating mortgage broker at the same time as your home loan application.
4. NHFIC assesses and approves your application — if eligible, NHFIC issues a guarantee to the lender covering the difference between your 5% deposit and 20%.
5. You purchase your property with a 5% deposit, and your lender does not charge LMI because the government guarantee covers the LMI threshold gap.
6. You repay your home loan as normal — the First Home Guarantee does not reduce your loan amount or change your repayment obligations. You are still responsible for repaying the full loan.

It is important to understand that the First Home Guarantee is not a cash grant. It is a government guarantee that removes the LMI requirement — saving you a significant upfront cost, but not reducing the amount you borrow or repay.

Who Is Eligible for the First Home Guarantee?

Eligibility for the First Home Guarantee is based on several criteria set by the Australian Government. These include:

Citizenship and Age

• Must be an Australian citizen or permanent resident
• Must be at least 18 years of age
• From July 2023, the First Home Guarantee was expanded to include eligible permanent residents, not just citizens

First Home Buyer Status

• You must be a genuine first home buyer — you must not have previously owned or had a legal interest in residential property in Australia, either alone or jointly with another person
• This includes investment properties as well as owner-occupied homes

Income Caps

To be eligible for the First Home Guarantee, your taxable income must be within the following limits (current as of the 2024–25 financial year — always verify current caps on the NHFIC website):

• Singles: Up to $125,000 per year
• Couples: Up to $200,000 per year combined

Income is assessed based on your most recent Notice of Assessment from the Australian Taxation Office (ATO).

Property Price Caps

Properties purchased under the First Home Guarantee must fall within the property price caps set for each state and territory. These caps vary by location — capital cities and regional centres generally have higher caps than other regional areas. Always check the current caps on the NHFIC website before committing to a purchase.

Deposit Requirement

• You must have saved a genuine deposit of at least 5% of the property’s purchase price
• The deposit must be made up of genuine savings — most lenders require evidence of savings held over at least 3 consecutive months
• Gifted funds may be accepted by some participating lenders, but policies vary

Owner-Occupied Purchase

• The property purchased under the First Home Guarantee must be for owner-occupation — you must intend to live in it, not use it as an investment property
• You must move into the property within a reasonable timeframe after settlement

Property Types

The following property types are eligible under the First Home Guarantee:

• Existing dwellings (established homes)
• New builds and newly constructed homes
• House and land packages
• Land and a separate construction contract
• Off-the-plan purchases (subject to conditions)

How Many Places Are Available Under the First Home Guarantee?

The First Home Guarantee has a limited number of places available each financial year. For the 2024–25 financial year, 35,000 places were available under the First Home Guarantee. Places are allocated on a first-come, first-served basis through participating lenders.

Because places are limited, it is important to apply early in the financial year if you are planning to use the First Home Guarantee. Once all places are allocated for the financial year, no further applications will be accepted until the next year’s allocation becomes available.

Always check the current number of available places and the application status on the NHFIC website.

Which Lenders Participate in the First Home Guarantee?

Not every lender in Australia is approved to offer the First Home Guarantee. To access the scheme, you must apply through a participating lender or a participating mortgage broker.

Participating lenders include a mix of major banks, smaller lenders, and credit unions. The full list of participating lenders is published and regularly updated on the NHFIC website. When comparing home loan options under the First Home Guarantee, it is worth comparing products from multiple participating lenders — because while the guarantee removes LMI, the interest rates, fees, and features of each lender’s loan products will still vary significantly.

A licensed mortgage broker who participates in the First Home Guarantee scheme can help you compare loan products across multiple participating lenders and apply for the guarantee on your behalf.

First Home Guarantee vs Other Government Schemes

The First Home Guarantee is one of several government schemes available to first home buyers in Australia. Here is how it compares to the other key programs:

It is possible to combine the First Home Guarantee with some other schemes — for example, using the FHSSS to build your 5% deposit and then applying the First Home Guarantee to avoid LMI. Always check current eligibility rules and confirm with your lender or broker before assuming schemes can be combined.

Pros and Cons of the First Home Guarantee

How to Apply for the First Home Guarantee

Applying for the First Home Guarantee is straightforward. Here is a step-by-step guide:

1. Check your eligibility: Review the current income caps, property price limits, and first home buyer status requirements on the NHFIC website before you do anything else.
2. Find a participating lender or broker: Only approved lenders and brokers can process First Home Guarantee applications. The full list is on the NHFIC website.
3. Get pre-approval: Apply for conditional home loan pre-approval through your chosen participating lender or broker. At this stage, you will also apply for the First Home Guarantee.
4. Find your property: Once pre-approved, search for properties that fall within the price caps for your state or territory.
5. Formal approval and settlement: Once you have found a property and signed contracts, your lender processes formal loan approval with the First Home Guarantee in place. Settlement proceeds as normal.
6. Move in: You must move into the property within a reasonable timeframe after settlement to comply with the owner-occupation requirement of the First Home Guarantee.

Common Mistakes to Avoid With the First Home Guarantee

• Assuming the First Home Guarantee is a cash payment: The First Home Guarantee is a government guarantee — not a grant. It does not reduce your loan amount or give you money. It simply removes the LMI requirement.
• Not checking property price caps before making an offer: Exceeding the property price cap for your area will make you ineligible for the First Home Guarantee — even if you meet all other criteria. Always verify the current cap for your location before committing to a purchase.
• Waiting too long to apply: Places under the First Home Guarantee are limited and allocated on a first-come, first-served basis. Apply early in the financial year to avoid missing out.
• Only comparing one participating lender: While the First Home Guarantee removes LMI, each participating lender’s interest rates and fees still vary. Always compare multiple participating lenders or use a participating broker to find the most competitive product.
• Not verifying current eligibility criteria: The income caps, property price limits, and scheme rules for the First Home Guarantee can change each financial year. Always check the NHFIC website for the most up-to-date information before applying.
• Borrowing more than you can comfortably repay: The First Home Guarantee allows you to buy with a smaller deposit — but your loan amount and repayments are still significant. Always assess your repayment capacity carefully and factor in a rate buffer of at least 2–3%.

Alternatives to the First Home Guarantee

If you do not qualify for the First Home Guarantee or all places for the financial year have been allocated, here are some practical alternatives to consider:

• Regional First Home Buyer Guarantee: The same structure as the First Home Guarantee but specifically for eligible buyers purchasing in regional Australia with a 5% deposit and no LMI.
• Family Home Guarantee: Designed for eligible single parents and single legal guardians, the Family Home Guarantee allows purchase with as little as a 2% deposit and no LMI.
• Guarantor loan: A parent or close family member uses equity in their own property to support your loan, potentially allowing you to borrow with a smaller deposit without paying LMI.
• First Home Super Saver Scheme: Save for your deposit inside your super fund with tax advantages. Learn more at the ATO website.
• State shared equity schemes: Some state governments offer programs where the government co-purchases a share of your property, reducing your loan size and removing the LMI requirement.
• Continue saving to 20%: Reaching a full 20% deposit removes the LMI requirement entirely without needing a government scheme, and gives you access to a wider range of loan products and lenders.

For comprehensive information on all government support available to home buyers in Australia, visit the Moneysmart first home buyer grants and concessions page.

Frequently Asked Questions: First Home Guarantee Australia

What is the First Home Guarantee?

The First Home Guarantee is an Australian Government scheme that allows eligible first home buyers to purchase a property with a 5% deposit without paying Lenders Mortgage Insurance. The government guarantees up to 15% of the property’s purchase price, covering the gap between the buyer’s 5% deposit and the standard 20% LMI threshold.

Is the First Home Guarantee a cash grant?

No. The First Home Guarantee is a government guarantee — not a cash payment. It does not reduce your loan amount, contribute to your deposit, or give you money. It simply means the government guarantees part of your loan so your lender does not charge LMI.

How many places are available under the First Home Guarantee?

The First Home Guarantee has a limited number of places available each financial year — 35,000 places were allocated in 2024–25. Places are allocated on a first-come, first-served basis. Always check current availability on the NHFIC website.

Who is eligible for the First Home Guarantee?

To be eligible for the First Home Guarantee, you must be an Australian citizen or permanent resident aged 18 or over, a genuine first home buyer, earn within the income caps (up to $125,000 for singles or $200,000 for couples), have a genuine 5% deposit, and intend to live in the property as your principal place of residence. Property price caps also apply by location.

Can I use the First Home Guarantee for an investment property?

No. The First Home Guarantee is only available for owner-occupied purchases. You must intend to live in the property after settlement. It cannot be used to purchase an investment property.

Can I use the First Home Guarantee with any lender?

No. The First Home Guarantee is only available through approved participating lenders and mortgage brokers. The full list of participating lenders is published on the NHFIC website.

Can I combine the First Home Guarantee with the First Home Owner Grant?

Yes, in many cases. The First Home Guarantee and the First Home Owner Grant (FHOG) can generally be used together, subject to meeting the eligibility criteria for both. Always confirm with your lender or broker and check the specific rules for your state or territory.

What happens if I sell my home after using the First Home Guarantee?

If you sell the property purchased under the First Home Guarantee, the guarantee ends. You will repay your loan in full from the sale proceeds as with any standard home loan. There is no requirement to repay the government for the guarantee itself — it simply ceases when the loan is discharged.

What if I have a dispute about the First Home Guarantee process?

If you have a complaint about your lender’s handling of a First Home Guarantee application that you cannot resolve directly, you can lodge a free complaint with the Australian Financial Complaints Authority (AFCA).

Does the First Home Guarantee affect my loan repayments?

The First Home Guarantee itself does not change your loan repayments — you still borrow and repay the full loan amount. However, because you are purchasing with a smaller deposit (5% rather than 20%), your loan balance is larger, which means higher repayments and more interest paid over the life of the loan compared to buying with a 20% deposit.

Conclusion: Is the First Home Guarantee Right for You?

The First Home Guarantee is one of the most practical and valuable government schemes available to first home buyers in Australia today. By allowing eligible buyers to purchase with just a 5% deposit — and removing the costly LMI requirement — the First Home Guarantee can meaningfully accelerate your path into homeownership without adding thousands of dollars in insurance premiums to your costs.

That said, the First Home Guarantee is not for everyone. Places are limited, income and property price caps apply, and buying with a smaller deposit does mean higher repayments and more interest paid over time. It is essential to assess your personal financial situation carefully, compare participating lenders thoroughly, and seek guidance from a licensed mortgage broker before applying.

If you meet the eligibility criteria and are serious about buying your first home in the near term, the First Home Guarantee is absolutely worth exploring. Used wisely, it can save you thousands and help you get into the property market sooner than you might have thought possible.

Ladabo.com is here to help you understand the First Home Guarantee and all of your home loan options in Australia — in plain English, with no pressure and no sales spin. Explore and compare your options with confidence.

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• Home Loan Pre-Approval in Australia: A Step-by-Step Guide for First Home Buyers

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