The Australian Government 5% Deposit Scheme lets eligible first home buyers purchase with a deposit as small as 5% without paying lenders mortgage insurance (LMI). The government, through Housing Australia, guarantees up to 15% of the property’s value to a participating lender, so the lender treats your loan as if you had a 20% deposit.
If saving a 20% deposit feels like trying to paddle out at Diggers on a big swell day, this scheme might be your rip. Here’s how it works.
What changed with the scheme recently?
You might have heard of it as the First Home Guarantee or the First Home Loan Deposit Scheme. Same scheme, new name. From 1 October 2025 it was expanded:
- No income caps for first home buyers.
- Unlimited places, so no more racing for a limited allocation.
- Higher property price caps across the country.
In NSW, the price cap is currently $1.5 million in Sydney and designated regional centres, with a lower cap in other parts of the state. Price caps are set by location and can change, so always check the current cap for your area on the Housing Australia website or have a chat with us.
Who is eligible for the 5% Deposit Scheme?
Generally, you need to:
- Be an Australian citizen or permanent resident, aged 18 or over.
- Be a first home buyer, or not have owned property in Australia in the past 10 years.
- Buy a home you’ll live in (not an investment).
- Have a deposit of at least 5% of the purchase price.
- Apply through a participating lender and meet that lender’s normal lending criteria.
That last point is important. The scheme helps with the deposit, but you still need to show you can afford the repayments.
What are the benefits?
- Get in sooner. Saving 5% instead of 20% may take years off your saving journey.
- No LMI. LMI can add thousands to your costs, so avoiding it is a big deal.
- Works with other help. You may be able to combine it with NSW stamp duty concessions and the First Home Super Saver Scheme, if you’re eligible.
What are the trade-offs?
We always like to show both sides:
- A bigger loan. Borrowing 95% means more interest over the life of the loan and higher repayments than if you’d saved a bigger deposit.
- Less equity buffer. If property values dip, you have less equity cushion. That matters if you need to sell or refinance early.
- Upfront costs still apply. Stamp duty (if not exempt), conveyancing, inspections and loan fees still need to be covered.
- Lender choice is narrower. Only participating lenders can offer it.
Is there a scheme for single parents?
Yes. Eligible single parents and legal guardians may be able to buy with as little as a 2% deposit through a separate stream of the scheme. It doesn’t need to be your first home. Eligibility rules apply, so get in touch if this sounds like you.
Can I use it in Coffs Harbour?
Yes, the scheme applies right across Australia, including the Coffs Coast, as long as the property is within the price cap for its location. We help local first home buyers with this regularly and can confirm which cap applies to the area you’re looking in.
How do I get started?
The first step is a chat to see if you’re eligible and what you might be able to borrow. From there, we can help you get pre-approval through a participating lender. Book a chat with Team Rhythm or check out our first home buyer page.
Frequently asked questions
No. If you’re eligible and approved under the scheme, the government guarantee replaces the need for LMI.
No. The property must be your home, and you’ll generally need to move in within a set timeframe.
No. The scheme is a guarantee, not cash. Grants and stamp duty concessions are separate state programs.
This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. Before acting on it, consider whether it’s appropriate for your circumstances. Your full financial situation will need to be reviewed before acceptance of any offer or product. It does not constitute legal, tax or financial advice. Lending criteria, fees and charges apply. Rhythm Finance Co Pty Ltd (Credit Representative 532711) is authorised under Australian Credit Licence 389328.
