How the First Home Guarantee Scheme Works in Australia

Key Takeaway

The First Home Guarantee (formerly the First Home Loan Deposit Scheme) is a Commonwealth Government initiative that allows eligible first home buyers to purchase a property with as little as a 5 per cent deposit without paying lenders mortgage insurance (LMI). The government guarantees up to 15 per cent of the property value to participating lenders, removing the need for LMI and potentially saving buyers between A$10,000 and A$40,000 or more, depending on the purchase price and loan amount.

What Is the First Home Guarantee?

The First Home Guarantee is designed to help first home buyers enter the property market sooner by reducing the deposit barrier. Traditionally, Australian lenders require a deposit of at least 20 per cent of the purchase price to avoid LMI, a one-off premium that protects the lender if you default on your loan. For a property priced at A$600,000, a 20 per cent deposit means saving A$120,000, which can take years to accumulate.

Under the First Home Guarantee, eligible buyers need only save a 5 per cent deposit (A$30,000 for that same A$600,000 property). The Commonwealth Government, through the National Housing Finance and Investment Corporation (NHFIC), provides a guarantee to the lender for the difference, eliminating the need for LMI (NHFIC, 2026).

Who Is Eligible?

To qualify for the First Home Guarantee in Australia, you must meet the following criteria:

First home buyer status: You and any co-borrowers must be Australian citizens aged 18 or over who have never owned property in Australia (including investment property).
Income limits: Single applicants must earn A$125,000 or less per year, and couples or joint applicants must earn a combined A$200,000 or less per year.
Genuine home: You must intend to occupy the property as your principal place of residence within 12 months of settlement and continue living there for at least six months.
Property price caps: The property must be below regional price caps, which vary by state and territory. As of July 2026, caps range from approximately A$550,000 in regional South Australia to A$1,000,000 in Sydney (Housing Australia, 2026).
Participating lender: You must apply through one of the scheme’s approved lenders (major banks and many smaller lenders participate).

The scheme has a limited number of places each financial year (35,000 for 2025-26), allocated on a first-come, first-served basis once applications open on 1 July each year.

How the Scheme Saves You Money

LMI is typically calculated as a percentage of the loan amount and increases the smaller your deposit. For a A$600,000 property with a 5 per cent deposit (loan-to-value ratio of 95 per cent), LMI can cost between A$20,000 and A$35,000, depending on the lender and your borrowing profile. This premium is usually capitalised into the loan, increasing both your loan balance and your monthly repayments.

By using the First Home Guarantee, the government guarantee replaces LMI entirely. You save the upfront premium, reduce your total loan amount, and lower your ongoing repayment obligations. As foundational texts such as Principles of Finance explain, reducing the initial capital outlay improves cash flow and accelerates equity accumulation for first-time buyers.

Understanding Your LMI Savings

Before you apply for the First Home Guarantee, it is essential to understand how much LMI you would pay without the scheme compared to the zero-cost guarantee. The amount varies based on your deposit size, loan amount, property value, and the lender’s LMI pricing. A small difference in deposit percentage can mean thousands of dollars in LMI.

An LMI calculator helps you estimate the premium you would face with a conventional loan at various deposit levels (5 per cent, 10 per cent, 15 per cent) and compare that against the government-backed alternative. This comparison clarifies the true savings the First Home Guarantee offers and helps you decide whether applying for a scheme place is worth the effort, or whether saving a larger deposit might be more cost-effective in your situation.

Applying for the First Home Guarantee

Applications open on 1 July each financial year and are processed on a first-come, first-served basis until all places are allocated. The process typically involves the following steps:

Check your eligibility: Confirm you meet the income, first home buyer, and property price requirements for your state or territory.
Secure pre-approval: Approach a participating lender for conditional loan approval. The lender assesses your serviceability (your ability to repay the loan) just as they would for any home loan.
Submit your application: Once you have pre-approval and have found a suitable property, the lender submits your application to NHFIC for the government guarantee.
Receive confirmation: If approved, NHFIC issues a certificate, and you proceed to settlement with your 5 per cent deposit.

Keep in mind that while the scheme waives LMI, you still need to cover other upfront costs such as stamp duty (though most states offer concessions or exemptions for eligible first home buyers), conveyancing fees, building and pest inspections, and any lender application fees. According to ASIC MoneySmart, these settlement costs can add several thousand dollars to your purchase budget, so factor them into your savings plan (MoneySmart, 2026).

Important Considerations

The First Home Guarantee does not guarantee loan approval. Lenders still assess your application based on standard serviceability criteria, including your income, expenses, credit history, and employment stability. You must be able to afford the ongoing repayments at current interest rates, plus a serviceability buffer (typically 3 percentage points above the loan rate).

The scheme applies only to owner-occupied home loans. If your circumstances change and you convert the property to an investment, you may be required to refinance out of the scheme.

Property price caps are updated periodically and vary significantly by location. Regional areas generally have lower caps than capital cities. Always verify the current cap for your target area before making an offer.

Places are limited each financial year. If you miss out, you can reapply when the scheme reopens on 1 July the following year, provided you still meet the eligibility criteria.

General Advice Warning and Disclaimer

The information in this article is general in nature only and does not take into account your personal objectives, financial situation, or needs. You should consider obtaining personal advice from a licensed mortgage broker or financial adviser before acting on any information presented here. This is not personalised financial, lending, or legal advice.

Interest rates, loan terms, property price caps, and eligibility criteria for the First Home Guarantee are current as of July 2026 but change frequently. Verify all details with the National Housing Finance and Investment Corporation, Housing Australia, or a participating lender before making any decisions. Loan approval, deposit requirements, fees, and settlement costs vary by lender, property, and your individual circumstances. Always confirm your eligibility and the current terms with a licensed lender or mortgage broker for your personal situation.

This article does not constitute legal or tax advice. For questions about stamp duty concessions, capital gains tax, or other tax matters, consult a qualified tax professional or visit the Australian Taxation Office website.