Buying with a 5% deposit: how the Australian Government scheme works

1. Buying with a 5% deposit: how the Australian Government scheme works

Saving a 20% property deposit can take years. The Australian Government Home Guarantee Scheme may allow an eligible buyer to purchase a home with a smaller deposit without paying lender’s mortgage insurance.

The scheme is administered by Housing Australia and accessed through participating lenders. It is a guarantee provided to the lender, not a cash payment to the buyer.

How a 5% deposit home loan works

Under the First Home Guarantee, an eligible home buyer may be able to purchase with a deposit starting from 5%.

Housing Australia guarantees part of the participating lender’s exposure. This can allow the lender to provide finance without charging lender’s mortgage insurance, subject to scheme rules and the lender approving the application.

The buyer remains responsible for:

• the full loan
• repayments
• interest and fees
• purchasing expenses
• property ownership costs.

The guarantee does not protect the buyer from a fall in property value or an inability to make repayments.

Who may be eligible?

Eligibility requirements can cover matters such as:

• Australian citizenship or residency status
• age
• income
• previous property ownership
• intended occupancy
• minimum deposit
• property type
• property price caps
• application through a participating lender.

Different guarantees may apply to first home buyers, regional buyers and eligible single parents or guardians.

Because the criteria can change, applicants should use the current Housing Australia eligibility information rather than relying on an older article or social media post.

The deposit is not the only money required

A 5% deposit does not necessarily mean you need only 5% of the purchase price in savings.

You may also need funds for:

• stamp duty
• conveyancing
• inspections
• settlement adjustments
• lender fees
• insurance
• moving expenses
• emergency reserves.

Available first home buyer concessions may reduce some costs, depending on the state, property value and buyer’s eligibility.

Does the scheme guarantee loan approval?

No.

You must satisfy both:

• the government scheme requirements; and
• the participating lender’s credit and property requirements.

The lender will assess your income, expenses, liabilities, credit history, deposit, employment and ability to repay the loan.

Risks of buying with a smaller deposit

A smaller deposit generally means a larger loan.

This can result in:

• higher repayments
• more interest over the loan term
• reduced equity at the beginning
• greater exposure to a decline in property value
• less flexibility if you need to sell soon after purchasing.

Consider whether you would remain comfortable if rates, ownership expenses or personal circumstances changed.

Property price caps

The scheme generally applies property price caps based on location.

A property must fall within the relevant cap and meet the participating lender’s security requirements. A property being within the cap does not establish that it is fairly priced or suitable.

Buyers should obtain independent legal and property advice.

Alternatives to consider

Depending on your position, alternatives may include:

• continuing to save a larger deposit
• purchasing at a lower price
• using a family guarantee
• accessing an eligible shared-equity program
• using the First Home Super Saver Scheme
• purchasing with another person
• considering a different location or property type.

Each option involves different costs and risks.

Speak with a participating lender or mortgage broker

A mortgage broker can help identify participating lenders and compare the scheme with other available pathways.

Call to action: Ask a finweb mortgage broker to check your potential eligibility for a 5% deposit home loan and explain the expected repayments, costs and lender requirements.

*General information only. Scheme places, criteria, price caps and participating lenders may change. Eligibility for a guarantee does not constitute loan approval.*