Key Takeaway

The First Home Guarantee lets eligible first home buyers purchase with a 5 per cent deposit without paying lenders mortgage insurance (LMI), backed by a government guarantee. You save thousands in upfront LMI costs compared to a standard low-deposit loan, but places are capped at 35,000 annually and eligibility rules apply. Traditional 20 per cent deposits avoid LMI entirely and offer wider lender choice, while low-deposit loans with LMI give you flexibility if you miss the scheme’s allocation or income limits.

Comparison Summary

OptionMinimum DepositLMI CostGovernment SupportLender ChoiceBest For
First Home Guarantee5%A$0 (waived)Yes (government guarantees 15%)Participating lenders onlyEligible first home buyers with small deposits
Traditional Loan (20% deposit)20%A$0 (not required)NoAll lendersBuyers who have saved a full deposit
Low-Deposit Loan with LMI5-19%A$8,000-A$30,000+NoAll lendersBuyers who miss scheme allocation or exceed income caps

According to the National Housing Finance and Investment Corporation, the First Home Guarantee is part of the broader Home Guarantee Scheme and provides government backing to help first home buyers enter the market sooner (NHFIC, 2026).

First Home Guarantee: 5 Per Cent Deposit, Zero LMI

The First Home Guarantee allows you to buy with just a 5 per cent deposit while the Commonwealth Government guarantees up to 15 per cent of the loan value. Participating lenders waive LMI because the government absorbs most of the default risk.

Pros:

  • Save A$10,000 to A$30,000 in LMI for a typical first home purchase.
  • Enter the market years earlier with a smaller deposit.
  • Access both variable-rate and fixed-rate home loans from participating lenders.
  • No scheme fees, interest rate premiums, or repayment penalties.

Cons:

  • Limited to 35,000 places per financial year, allocated on a first-come basis.
  • Strict eligibility: you must be an Australian citizen aged 18 or over, earn below the income cap (A$125,000 for individuals or A$200,000 for couples as of 2026), and never have owned property in Australia.
  • Purchase price caps vary by location (for example, A$800,000 in Sydney, A$650,000 in Adelaide, lower in regional areas).
  • Only available through participating lenders (major banks and selected smaller lenders are on the panel).
  • The guarantee stays with the lender, not you, so refinancing before you reach 20 per cent equity may trigger LMI with the new lender.

The scheme suits first home buyers who meet the income and price limits and can secure a place before the annual allocation runs out.

Traditional Home Loan: 20 Per Cent Deposit

Saving a 20 per cent deposit is the conventional path and avoids LMI entirely without needing government support.

Pros:

  • No LMI cost, saving thousands.
  • Freedom to choose any lender and negotiate the best rate.
  • No eligibility restrictions on income, property price, or first-time status.
  • Refinancing flexibility without LMI concerns.

Cons:

  • Requires A$100,000 deposit for a A$500,000 home, which takes years to save for many buyers.
  • Missing out on price growth while you save can offset the LMI savings.
  • Opportunity cost: your deposit sits in a savings account earning modest interest instead of building equity in property.

This option works best for buyers with strong savings discipline, stable high incomes, or family assistance, and for those purchasing in markets where renting is cheaper than repayments, as covered in foundational texts such as Principles of Finance.

Low-Deposit Loan with LMI: 5 to 19 Per Cent Deposit

If you miss the First Home Guarantee allocation or exceed the income cap, you can still borrow with a deposit under 20 per cent by paying LMI.

Pros:

  • Available to all buyers, not just first home buyers.
  • No income caps or purchase price limits beyond the lender’s serviceability assessment.
  • Full lender choice across the market.
  • Refinancing is easier once you have paid LMI, as it typically applies to the original loan only.

Cons:

  • LMI costs A$8,000 to A$30,000 or more depending on your deposit size and loan amount (lower deposits mean higher premiums).
  • LMI protects the lender, not you, so you receive no benefit if you default.
  • Higher repayments if you capitalise the LMI into your loan.

Read also: First Home Guarantee (FHLDS): How to Buy with a 5 Percent Deposit in Australia

ASIC MoneySmart warns that LMI premiums vary between insurers and are typically added to your loan balance, increasing your total interest cost (MoneySmart, 2026).

This route suits buyers who cannot access the First Home Guarantee but want to enter the market now rather than wait years to save a larger deposit.

Which Option Suits You?

Choose the First Home Guarantee if:

  • You are a first home buyer earning below the income cap.
  • You have saved at least 5 per cent (plus stamp duty and other costs).
  • The property you want falls within the relevant price cap for your region.
  • You can apply early in the financial year to secure a place.

Choose a traditional 20 per cent deposit if:

  • You have the savings or family support to reach 20 per cent within a reasonable timeframe.
  • You want maximum lender choice and the lowest possible interest rate.
  • You are buying an investment property or a home above the First Home Guarantee price cap.

Choose a low-deposit loan with LMI if:

  • You miss the First Home Guarantee allocation or do not meet eligibility.
  • Your income exceeds the scheme cap but your lender approves the loan.
  • You are not a first home buyer but want to purchase with a small deposit.
  • Waiting to save 20 per cent means missing out on a property or market growth.

Common Mistakes to Avoid

  • Assuming the First Home Guarantee is always available: places run out each year, often within months of the financial year starting.
  • Forgetting other upfront costs: a 5 per cent deposit does not cover stamp duty (though some states offer concessions for first home buyers), conveyancing, or building inspections.
  • Refinancing too early: switching lenders before you have 20 per cent equity may trigger LMI unless the new lender waives it as part of a promotion.
  • Ignoring serviceability: even with the guarantee, lenders assess your income, expenses, and credit history; a 5 per cent deposit does not guarantee loan approval.

Frequently Asked Questions

Can I use the First Home Guarantee to refinance?
No. The guarantee applies only to new home purchases, not refinancing.

What happens if I sell the property?
You can sell at any time. The guarantee ends when the loan is repaid or refinanced.

Does the First Home Guarantee cover all property types?
You can buy an existing home or a new build. Investment properties are not eligible.

How does LMI compare to the First Home Guarantee in total cost?
For a A$500,000 home with a 5 per cent deposit, LMI typically costs A$15,000 to A$20,000. The First Home Guarantee waives this entirely, saving you that amount.

Conclusion

The First Home Guarantee offers a genuine shortcut for eligible buyers, cutting years off the deposit-saving timeline and eliminating a major upfront cost. If you meet the criteria, apply early to secure your place. Traditional 20 per cent deposits remain the gold standard for borrowing power and lender choice, while low-deposit loans with LMI provide a backup if the scheme is full or you fall outside the caps. Match your deposit strategy to your savings, income, and timeline, and confirm current eligibility and price limits with a participating lender or mortgage broker before applying.

General advice warning: This information is general in nature and does not consider your objectives, financial situation, or needs. The First Home Guarantee has annual caps, income limits, and price restrictions that change periodically. Eligibility and terms apply, and places are allocated on a first-come, first-served basis. You should obtain personal advice from a licensed mortgage broker or financial adviser before making a home loan decision. This article does not constitute personalised financial, lending, or legal advice.