Saving for a home deposit can feel like an uphill battle unless you are looking at a 5% deposit home loans. Especially with property prices steadily rising across the country, the traditional advice has always been to save at least 20% of the purchase price. But with the median home price now well over $500,000 in every Australian capital city, that means saving at least $100,000 before you can even think about buying.
Here’s the good news: you don’t need a 20% deposit to buy a home. Thanks to initiatives like the Home Guarantee Scheme (HGS), eligible first-home buyers can purchase a property with as little as 5% deposit—without paying Lenders Mortgage Insurance (LMI).
In this guide, we’ll explain how 5% deposit home loans work, who qualifies, and how to get started.
What Is a 5% Deposit Home Loan?
A 5% deposit home loan allows you to borrow up to 95% of a property’s value, meaning you only need to save 5% upfront. For example, for a $600,000 home, that’s just a $30,000 deposit compared to $120,000 with a traditional 20% deposit.
Under normal circumstances, you’d be required to pay Lenders Mortgage Insurance (LMI) with less than a 20% deposit. But under the Home Guarantee Scheme, eligible buyers can avoid LMI altogether. Instead, the Government guarantees the remaining 15% of the deposit, helping you fast-track your homeownership journey.
Key Features of 5% Deposit Loans
- ✅ Enter the market sooner – No need to wait years to save a 20% deposit.
- ✅ No LMI for eligible applicants under the Home Guarantee Scheme.
- ✅ Government-backed support to boost your borrowing power.
- ❗ Higher loan amount means higher monthly repayments.
- ❗ Stricter lender criteria – especially around income, credit history, and employment.
What Is the Home Guarantee Scheme (HGS)?
The Home Guarantee Scheme (formerly known as the First Home Loan Deposit Scheme) is an Australian Government initiative to help eligible buyers enter the property market with a deposit as low as 5%, without the cost of LMI.
There are three types of guarantees:
- First Home Guarantee (FHBG) – For first-time buyers purchasing a home with a 5% deposit.
- Regional First Home Buyer Guarantee (RFHBG) – Same as FHBG but for regional property purchases.
- Family Home Guarantee (FHG) – For eligible single parents with at least one dependent, requiring just a 2% deposit.
Eligibility Criteria for a 5% Deposit Home Loan
To qualify under the HGS, you must meet the following:
- ✅ Be an Australian citizen or permanent resident.
- ✅ Earn under $125,000 (single) or $200,000 (couples) per year (taxable income).
- ✅ Be a first-home buyer (unless applying under the Family Home Guarantee).
- ✅ The property must be owner-occupied – no investment properties.
- ✅ Must move in within six months of settlement.
- ✅ The property must fall under price caps (see below).
Price Caps by State (2024–2025 Financial Year)
| State/Territory | Capital City/Regional Centre | Rest of State |
|---|---|---|
| NSW | $900,000 | $750,000 |
| VIC | $800,000 | $650,000 |
| QLD | $700,000 | $550,000 |
| WA | $600,000 | $450,000 |
| SA | $600,000 | $450,000 |
| TAS | $600,000 | $450,000 |
| ACT | $750,000 | N/A |
| NT | $600,000 | N/A |
Check the Housing Australia website for the latest caps.
Participating Banks & Lenders
You must apply through a participating lender or an authorised broker. Some major banks include:
- Commonwealth Bank
- Westpac
- NAB
- St. George
- Bank of Melbourne
Smaller lenders include:
- Great Southern Bank
- Bank First
- Bendigo Bank
- Indigenous Business Australia
Pros & Cons of a 5% Deposit Loan
✅ Pros
- Get into the market faster
- Avoid years of saving
- No LMI (for eligible buyers)
- Benefit from property growth earlier
- Potential rent savings
❌ Cons
- Higher monthly repayments
- More interest paid over the loan’s life
- Risk of negative equity if property values fall
- Limited availability – scheme spots are capped each year
How to Apply: Step-by-Step
- ✅ Check your eligibility on the Housing Australia website
- 🔍 Choose a participating lender or authorised broker
- 📝 Apply for a home loan – including scheme application
- 🏡 Start house hunting (make sure it fits the price cap)
- ✅ Loan settlement and move in
What If I’m Not Eligible for the Scheme?
Find out if you are eligible You can still access a 5% deposit home loan through:
💰 Low-Deposit Loan with LMI
You’ll pay LMI, but you can still get into the market with as little as 5% saved.
👨👩👧👦 Guarantor Loan
A parent or family member can use the equity in their property as security to help you borrow up to 100% and skip LMI.
Other Support for First-Home Buyers
🏠 First Home Owner Grant (FHOG)
One-off government payment for eligible first-home buyers. Varies by state.
💼 First Home Super Saver Scheme
Use voluntary super contributions to save a deposit faster with tax benefits.
Understanding Repayments & Managing Your Loan
Home loan repayments consist of interest and principal. You can choose:
- Fixed rate – consistent payments, but less flexibility
- Variable rate – may change with market rates, but more flexible
- Split loan – best of both worlds
Use offset accounts or redraw facilities to reduce interest and maintain flexibility.
Extra Costs to Budget For
Don’t forget about the extras:
- Stamp duty (may be waived for first-home buyers)
- Legal/conveyancing fees
- Building and pest inspections
- Insurance and council rates
Final Word: Is a 5% Deposit Home Loan Right for You?
A 5% deposit home loan, particularly through the Home Guarantee Scheme, can be a powerful way to fast-track your path to homeownership. But it’s not right for everyone. Weigh up the higher repayments and interest costs against the benefit of entering the market sooner.
A mortgage broker can help assess your eligibility, compare lenders, and guide you every step of the way.
📍 Need Help? Find a Local Mortgage Broker
Let an expert help you secure a low-deposit home loan:
🔍 FAQs: 5% Deposit Home Loans in Australia
Can I buy a home with just a 5% deposit in Australia?
Yes, if you’re eligible under the Home Guarantee Scheme or use a guarantor or pay LMI.
Do I still have to pay LMI with a 5% deposit?
Not if you’re approved through the Home Guarantee Scheme.
What income limits apply for the scheme?
$125,000 for singles or $200,000 combined for couples.
Can I use the scheme to buy an investment property?
No – it must be an owner-occupied home.
How do I apply for the First Home Guarantee?
Through a participating lender or mortgage broker – not directly.
