The First Home Guarantee, explained: the 5% Deposit Scheme with no LMI

The short answer: the First Home Guarantee — renamed the Australian Government 5% Deposit Scheme in October 2025 — lets eligible first home buyers purchase with just a 5% deposit and no Lenders' Mortgage Insurance. It isn't a grant or a cash payment — the government guarantees part of your loan (up to 15% of the property's value), so the lender treats you as though you'd put down 20% and skips the LMI. It's open to citizens and permanent residents, and from October 2025 there are no place or income caps — though property price limits apply depending on where you buy. You still borrow, and repay, the other 95%.

Meet Priya and Dan, again

When we last sat with Priya and Dan, they'd made their peace with a hard call: not to wait years for a 20% deposit, but to buy sooner with 5% — and lean on the First Home Guarantee to avoid Lenders' Mortgage Insurance. Priya's a nurse in Melbourne's west, Dan does IT support, and their first baby is due soon. They have about $68,000 saved.

Deciding to use the guarantee was one thing. Understanding what it actually was took a while — because almost everyone they asked described it wrong. "Is it free money?" Dan's brother asked. It isn't. "Does the government end up owning part of the house?" No — that's a different scheme. So before they signed anything, they got clear on what they were actually signing up for.

Priya and Dan aren't real people — but their situation is. Every rule and number in this story is real and linked to its source below.

What the guarantee actually is (and isn't)

Here's the part that trips people up. The First Home Guarantee is not cash, and not a deposit top-up. You still need your 5%, and you still borrow the remaining 95%.

What the government does is act as a guarantor for part of your loan — up to 15% of the property's value — through Housing Australia. Normally, if you borrow more than 80% of a property's value, the lender charges Lenders' Mortgage Insurance to protect itself. The guarantee fills that gap on paper, so the lender treats your 5% deposit as though it were 20% — and doesn't charge LMI.

The government doesn't own any of your home, and you don't repay the guarantee. It simply sits behind your loan so you can get in with less.

Why skipping LMI is the whole point

For Priya and Dan, this is where the maths turned. On a $650,000 home with a 5% deposit, LMI could run to five figures — and lenders usually add it to the loan, so you'd pay interest on the insurance for years. The guarantee removes that cost entirely. That's the real value: not a handout, but a five-figure fee you never have to pay.

What changed in October 2025

The guarantee used to come with two frustrating limits: a capped number of places each year (they ran out, so buyers raced for a spot) and income caps that shut some earners out. From 1 October 2025, both were removed — no place limits, no income caps — and the property price caps were raised (Housing Australia). For Priya and Dan, that meant no scramble for a place, and a price ceiling that comfortably covered their west-Melbourne townhouse.

The rules that still apply

It isn't unconditional. Broadly, to use the First Home Guarantee you need to:

• Be a first home buyer (or not have owned property in Australia for a set period), and an Australian citizen or permanent resident, aged 18 or over.
• Buy a home to live in — it's for owner-occupiers, not investors.
• Buy under the property price cap for your area (caps are higher in the capital cities and change, so check the current figure for where you're buying).
• Borrow through a participating lender — not every bank is on the panel.

The precise, current rules live with Housing Australia, and this is one of five schemes worth knowing — see the full rundown of first home buyer schemes.

The honest trade-off

The guarantee gets you in years earlier. It doesn't make the loan smaller. A 5% deposit means a 95% loan — bigger repayments, and more interest over the life of the mortgage than if you'd waited and saved 20%. That's the deal: speed now, in exchange for a heavier loan later.

Whether that trade is worth it comes down to whether the repayments still leave room to live. Priya and Dan stress-tested theirs on one income — the months Priya would be on parental leave — using the calculators at Moneysmart, not optimism.

How it played out

They applied through a participating lender, the guarantee removed the LMI, and — because their Sunshine shortlist sat under $600,000 — the stamp duty exemption waived the duty too. Suddenly their $68,000 covered the 5% deposit and the other costs, with a buffer left for the month the baby arrived.

The question that settled it was never "can we qualify?" — with the caps gone, they clearly could. It was quieter: can we carry a 95% loan on one income, in a bad month, and still breathe? When the answer held, they moved.

If you're like Priya and Dan

This is exactly the maths Havenli does with you — whether you'd qualify for the First Home Guarantee, the price cap where you're actually looking, what the repayments would be on a 95% loan, and which other schemes stack on top. General guidance, every figure linked to its source — and when you're ready, Havenli helps you find a broker on a participating-lender panel. See how Havenli works, read the schemes overview, or go back to their deposit story.

This story is general information, not financial, legal or taxation advice — Priya and Dan aren't real people, their numbers are illustrative, and your circumstances will differ. Scheme rules, caps, price limits and lender panels change; always confirm the current details with the official sources linked above, and talk to a licensed professional for advice on your situation.