Most of the clients we work with are established property owners or investors. But from time to time we send something that is less about you and more about the people around you — your children, siblings, or colleagues trying to get their foot in the door.
This is one of those. The 5% Deposit Scheme (and its companion, the 2% Deposit Scheme for single parents) can make a meaningful difference for eligible buyers. But the rules are specific, and there are a few common misconceptions worth clearing up before anyone assumes they qualify.
What you need to know
How the scheme actually works
When you buy a home with less than a 20% deposit, lenders typically require you to pay Lenders Mortgage Insurance (LMI). LMI protects the lender — not you — if you default. The cost can run into the tens of thousands of dollars depending on your loan size and deposit.
The 5% Deposit Scheme removes that requirement for eligible buyers. The federal government, through Housing Australia, guarantees the portion of your loan between your deposit and 20%. The lender treats the loan as if it has a 20% deposit behind it, so no LMI applies.
You still borrow the full amount. You still make all the repayments. The government is not contributing money — it is providing a guarantee to the lender.
Purchase price: $800,000
5% deposit: $40,000
Loan amount: $760,000
Government guarantee covers: the gap between $40,000 and $160,000 (20%) = $120,000
The lender treats the loan as adequately secured. No LMI required. The buyer saves the LMI premium — which at this loan size could be $20,000–$30,000 or more.
5% Deposit Scheme vs 2% Deposit Scheme
5% Deposit Scheme — for eligible first home buyers purchasing a property to live in. The most widely used scheme. Property price caps apply by location.
2% Deposit Scheme — for eligible single parents or single legal guardians with at least one dependent child. Single parents do not need to be a first home buyer to access this scheme — but they must not own another property at the time of settlement.
Who is eligible
Citizenship and residency: You must be an Australian citizen or permanent resident. The scheme is not available to temporary visa holders.
First home buyer status: You must not have previously owned residential property in Australia — as an individual or as part of a company or trust — in the last 10 years. The test is ownership, not whether you have lived in the property.
No income limit: There is currently no income cap. The scheme is open to eligible buyers regardless of their income.
Couples: If two people are applying together, both must independently meet the eligibility criteria. If one applicant has previously owned property, the couple will not qualify.
Owner-occupier intent: You must intend to move into and live in the property. The scheme cannot be used to purchase an investment property.
Property price cap: Eligible properties must fall below the cap for your location. New builds, established homes, house-and-land packages, and off-the-plan apartments can all qualify.
| State | Capital city & regional centres | Other areas |
|---|---|---|
| New South Wales | $1,500,000 | $800,000 |
| Victoria | $950,000 | $650,000 |
| Queensland | $1,000,000 | $700,000 |
| Western Australia | $850,000 | $600,000 |
| South Australia | $900,000 | $500,000 |
| Tasmania | $700,000 | $550,000 |
| Territory | All areas | |
|---|---|---|
| Australian Capital Territory | $1,000,000 | |
| Northern Territory | $600,000 | |
| Jervis Bay Territory & Norfolk Island | $550,000 | |
| Christmas Island & Cocos (Keeling) Islands | $400,000 | |
Regional centres include Illawarra, Newcastle and Lake Macquarie (NSW); Geelong (VIC); Gold Coast and Sunshine Coast (QLD). Price caps are reviewed periodically — confirm current caps at firsthomebuyers.gov.au or with your broker.
The misconception that catches people out
Owning an investment property does not make you a homeowner — but it does disqualify you from the 5% Deposit Scheme.
The eligibility test is not whether you have lived in a property. It is whether you have owned residential property in Australia in the last 10 years. An investment property counts as ownership.
We regularly speak to people who assumed the scheme would still be available to them later, because they had never lived in the property they owned. Unfortunately, that is not how it works. In many cases, buying an investment property first means permanently losing access to this benefit.
For couples, if either partner has previously owned property within the last 10 years, the couple will not qualify — even if the other partner has never owned anything.
The loan application process
Confirm eligibility
Before approaching a lender, confirm that you meet the eligibility criteria — citizenship, first home buyer status (for both applicants if applying as a couple), and that the property falls within the price cap for your location. A broker can work through this quickly. Mistakes at this stage can delay or derail the application.
Choose a participating lender
The scheme is only available through lenders authorised by Housing Australia. There are currently around 40 participating lenders. Not all offer both schemes, and their policies, rates, and serviceability assessments differ. Comparing lenders — not just rates — matters here.
Gather your documents
A standard application requires proof of identity, recent payslips or tax returns, bank statements showing your deposit savings, and evidence of any existing debts. Having everything ready before you apply speeds the process significantly.
Apply for a scheme place with your loan pre-approval
Your broker submits the application to the lender, who assesses your borrowing capacity and confirms you meet the scheme requirements. The scheme place is applied for at the same time as your loan pre-approval — they are processed together. Once approved, your scheme place is reserved. Note: the pre-approval and scheme place are valid for 90 days. If you have not exchanged contracts within that period, you will need to re-apply before proceeding.
Exchange contracts and confirm the guarantee
Once you have found a property and exchanged contracts, the lender formally confirms the guarantee through Housing Australia. The loan is then processed in the normal way — valuation, formal approval, and preparation for settlement.
Settlement
Settlement proceeds as it would for any home loan. You move in, begin repayments, and the government guarantee sits in the background until it is formally removed.
Your scheme place and loan pre-approval are valid for 90 days from the date of approval. If you have not exchanged contracts within that window, you will need to re-apply through your participating lender. The re-application is straightforward, but it is worth factoring this timeline into your property search — particularly in slower markets where finding the right property can take time.
Is a smaller deposit always the right move?
Not automatically. The scheme removes LMI, which is a genuine saving — but a smaller deposit still means a larger loan and higher monthly repayments.
For buyers who can comfortably service a larger loan, getting into the market sooner can make financial sense — particularly where waiting to save a full 20% deposit means paying more for the same property later.
For buyers whose income is already stretched, a larger loan can create cash flow pressure, especially if interest rates rise after purchase. Running the numbers properly before deciding is worth the time.
How the guarantee is removed
The government guarantee does not stay on your loan forever. Once you have built sufficient equity, it can be formally discharged.
Building equity to 20% through repayments
Once your loan balance drops below 80% of the property’s current value, you can apply to have the guarantee discharged. A formal property valuation is typically required. This happens organically over time, and may happen faster if property values in your area have risen since you purchased.
Making additional or lump-sum repayments
Extra repayments accelerate your path to 20% equity and reduce the total interest you pay over the life of the loan.
Refinancing to a new lender
The guarantee does not transfer if you refinance. You would need sufficient equity to bring your loan-to-value ratio below 80%, or pay LMI on the new loan if your equity is still below that threshold.
If your loan balance is still above 80% of the property’s value when you move to a new lender, you will likely face LMI on the new loan — the very cost the scheme helped you avoid in the first place. Before making any decision to refinance in the first few years, check your current loan-to-value ratio. We can model this as part of any refinancing conversation.
Selling the property
If you sell, the loan is repaid at settlement and the guarantee is discharged automatically. There is no separate step required on your end.
Know someone who might benefit?
If you have a son, daughter, sibling, colleague, or friend who is thinking about buying their first home, feel free to share this article or put them in touch directly. We are happy to have an obligation-free conversation about whether the scheme fits their situation, which lenders might suit them best, and what their borrowing position looks like.
And if you are an existing investor thinking about your own next purchase, refinance, or portfolio structure, we are equally happy to help with that.
General information only. This article is general information and does not constitute financial advice. Eligibility criteria, property price caps, and scheme details are subject to change. Always verify current details at housingaustralia.gov.au and speak with a qualified mortgage broker about your specific circumstances before applying.
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