First Home Guarantee Scheme 2026: Can You Buy with Just a 5% Deposit?
Key Takeaways
Eligible first home buyers can purchase with a 5% deposit (2% for single parents) and skip LMI entirely, with income caps and place limits removed from 1 October 2025.
Scheme eligibility is not loan approval: lenders still assess a 95% loan against a 3 percentage point serviceability buffer, and many want genuine savings.
A 5% deposit means a larger loan and higher repayments, not a cheaper home, so check the repayments sit comfortably.
Budget for the full cash to complete and confirm your area's price cap before making an offer, since border suburbs like Albury and Wodonga differ.
For most first home buyers, the deposit has always been the wall. Saving 20% while paying rent can take years, and in that time, prices often move further out of reach. That is what makes the Australian Government 5% Deposit Scheme so significant in 2026: it lets eligible buyers purchase with a fraction of the usual deposit and skip Lenders Mortgage Insurance (LMI) entirely. After the scheme was expanded in late 2025, that pathway is now open to far more people than before.
The catch worth understanding from the outset is that a smaller deposit means a larger loan, and lenders still assess that loan against a serviceability buffer of 3 percentage points. So the real question is not just "can I get in with 5%?" but "can I comfortably carry the loan that comes with it?" This article explains how the scheme works inside an actual loan application, what no LMI really means for you, the costs that remain beyond your deposit, and how to decide whether buying now with 5% is the right move or whether saving longer suits you better.
The quick answer
Yes, eligible first home buyers can buy with a 5% deposit in 2026 through this scheme, and avoid LMI while doing it. That part is genuinely straightforward. What is not automatic is the loan approval itself.
Qualifying for the scheme and being approved for the loan are two separate things. The scheme handles your deposit gap; the lender still has to be satisfied you can service a 95% loan. Plenty of buyers are eligible for the scheme but limited by their borrowing capacity, so it is best to treat the 5% deposit as the door, not the whole house.
What the Australian Government 5% Deposit Scheme is
The scheme, part of the broader Home Guarantee Scheme and sometimes still called the First Home Guarantee, lets eligible first home buyers purchase with a minimum 5% deposit while the government guarantees the gap up to 20%. Because of that guarantee, the lender treats you as though you have a 20% deposit for insurance purposes, so you do not pay LMI.
It is important to be clear that the government is not giving you money or buying a share of your home. You still own 100% of the property and you still borrow the rest from a lender in the normal way. The guarantee simply sits behind your loan, which is what removes the LMI cost. You apply through a participating lender, not directly to Housing Australia, and the scheme is built into a standard owner-occupier home loan.
What changed from 1 October 2025
The scheme became far more accessible from 1 October 2025, which is why it is worth a fresh look in 2026. The changes removed several of the barriers that previously locked people out.
Income caps were removed, so eligibility no longer depends on earning under a set amount.
The limit on the number of places was abolished, so there is no waitlist to compete for.
Property price caps were increased, widening the range of homes that qualify.
The single-parent and regional pathways were folded into the same scheme, with eligible single parents and guardians able to enter with as little as 2%. These changes mean many buyers who were previously shut out, particularly higher earners and those in pricier markets, can now use it. Price caps still apply and vary by location, so the limit for your area is the key detail to confirm.
Who is eligible in 2026
Eligibility is built around being a genuine first home buyer who intends to live in the property. The rules are designed to direct the support toward owner-occupiers rather than investors.
In broad terms, you generally need to be buying your first home, intend to move in and live there, and be an Australian citizen or permanent resident. You can apply on your own or jointly, and the scheme allows applications with a partner, friend or family member, usually with a maximum of two applicants. The loan itself needs to be an owner-occupier principal and interest loan, typically with a term of up to 30 years. Because the finer eligibility points can shift, it is worth confirming the current criteria against your own situation before relying on them.
How the 5% deposit actually works
This is the part most worth understanding properly, because the headline "5% deposit, no LMI" hides a few important mechanics. Getting your head around these helps you judge whether the scheme genuinely suits you rather than just sounds appealing.
Your deposit and your LVR
The Loan to Value Ratio (LVR) is your loan as a percentage of the property value. If you put down 5%, you are borrowing the other 95%, so your LVR is around 95%. Lenders watch LVR closely because a higher LVR means more risk to them, and that can affect how strictly they assess your application even with the government guarantee in place. A 95% LVR is at the higher end, so the loan is scrutinised accordingly.
What "no LMI" really means
Avoiding LMI is a real saving, often worth thousands or tens of thousands of dollars depending on the price and deposit. But it is crucial to understand what it does not do: it does not reduce your loan. With a 5% deposit you are still borrowing about 95% of the price, and your repayments are based on that full amount. The scheme saves you the insurance premium; it does not make the home cheaper or the loan smaller.
How a 95% loan feels in repayments
A smaller deposit means a bigger loan, higher repayments, and a thinner equity buffer than you would have with 20% down. On a $600,000 home, a 5% deposit of $30,000 leaves a loan of around $570,000, compared with $480,000 if you had saved 20%. That difference flows straight into your monthly repayments and the interest you pay over time. None of this makes the scheme wrong; it just means the comfort of your repayments deserves as much attention as the excitement of getting in.
Property price caps and eligible property types
The scheme only applies up to a property price cap, and the cap depends on where you are buying. Caps are generally higher in capital cities and lower in regional areas, so the same budget can qualify in one location and not another.
This regional difference matters in border areas like ours. Albury sits in regional New South Wales and Wodonga sits in regional Victoria, and the price caps and other state-based settings can differ across the river, which is worth factoring in if you are looking on both sides. On eligible property types, the scheme generally covers a range of homes, including an existing house, a townhouse or apartment, a house and land package, an off-the-plan purchase, or vacant land with a contract to build. Because a home just over the cap loses eligibility entirely, confirming the exact cap for your area before you make an offer is one of the most important checks you can do.
How to apply through a participating lender
You do not apply for the scheme directly; it is arranged as part of your home loan through a participating lender. That makes choosing the right lender part of the decision, not an afterthought.
The general path is to get pre-approved through a participating lender, then find a property and sign a contract within the approval window, which is commonly around 90 days. The detail that often gets overlooked is that participating lenders are still ordinary lenders with their own policies. They assess income, debts and borrowing capacity differently, so one may approve a borrower that another declines, even under the same scheme. Comparing participating lenders is where a lot of value sits, because the scheme is uniform but the lending behind it is not.
The costs you still need beyond the 5% deposit
Your deposit is only part of the cash you need at the start. Buyers who budget only for the 5% can get caught short close to settlement, so it helps to map the full picture early. These additional costs are often called your cash to complete.
Stamp duty, where it applies, though first home buyer concessions may reduce or remove it depending on the price and state.
Conveyancing or legal fees for handling the transfer.
Building and pest inspection costs.
Lender fees, such as application or valuation fees where charged.
Building insurance, which lenders usually require from the day you are responsible for the property.
Knowing these in advance means the 5% deposit is the start of your budget, not the whole of it, and it prevents an unwelcome scramble for funds in the final weeks.
Why scheme eligibility is not the same as loan approval
If you are eligible for the scheme but unsure whether a lender will approve a 95% loan, speaking with a mortgage broker in Albury & Wodonga can help you understand your true borrowing capacity before you commit. They can compare participating lenders, check how your income and deposit may be assessed, and help you plan the extra costs you will still need beyond the 5% deposit.
This is the single most important thing to understand, because it is where confident buyers can come unstuck. Being eligible for the scheme tells you the government will support a low-deposit purchase; it does not tell you a lender will approve the loan.
Lenders assess affordability through a serviceability test, and the Australian Prudential Regulation Authority (APRA) requires them to add a buffer of 3 percentage points on top of your actual rate. So a loan at 6% is assessed at around 9%, to check you could still manage if rates rose. Lenders also shade variable income, often counting overtime, bonuses or commission at around 80%, and they factor in your living costs and debts, including any study loan repayments. On top of that, many lenders still want to see genuine savings, meaning funds you have built up and held over time, often around 5% of the price saved over at least three months. You can be perfectly eligible for the scheme and still fall short on serviceability or savings history, which is exactly why getting your borrowing capacity assessed early is so valuable.
Real borrower examples
The scheme plays out differently depending on circumstances, so a few short examples help show how the pieces fit together in practice.
A single buyer with a 5% deposit uses the scheme to avoid LMI and buys an established home, getting in a couple of years earlier than a 20% target would have allowed, while accepting a larger loan and higher repayments.
A single parent enters with a 2% deposit through the family pathway folded into the scheme, reaching a home that a larger deposit requirement would have kept out of reach.
A couple eligible for the scheme finds their borrowing capacity, not their deposit, is the real limit, because their existing debts reduce how much a lender will approve.
A buyer in regional Victoria checks the local price cap before bidding and adjusts their search slightly to stay within an eligible range.
A borrower with strong income but little savings history is asked by their lender to demonstrate genuine savings before the loan is approved, despite qualifying for the scheme.
Risks and mistakes to avoid
A low deposit is a powerful tool, but it carries risks worth managing rather than ignoring. Knowing them in advance keeps a smart entry from turning into a stressful one.
Assuming scheme eligibility means automatic loan approval, when serviceability still decides the outcome.
Budgeting only for the deposit and overlooking the cash to complete.
Buying a property just over the price cap and losing eligibility entirely.
Underestimating how a 95% loan feels in repayments, with a thinner buffer if rates rise.
Facing a valuation shortfall, where the lender values the property below the price, which bites harder on a small deposit.
Changing jobs or taking on new debt between approval and settlement, which can change your assessment.
Missing the contract deadline within your approval window.
None of these should put you off, but each one is easier to handle if you have planned for it rather than met it by surprise.
Should you use the scheme or save a bigger deposit?
This is the real decision behind the scheme, and there is no single right answer. It comes down to a trade-off between getting in sooner with a larger loan and waiting to build a stronger deposit. Running through the options helps bring clarity.
Use the scheme now if your finance is solid, your repayments are comfortable on a 95% loan, and getting into the market sooner outweighs carrying a larger loan, particularly if prices in your area are rising.
Save longer if a bigger deposit would meaningfully ease your repayments or your buffer, and the market is not moving away from you faster than you can save.
Consider a family guarantee if a parent's equity is available, which can lift your deposit position, though it places the guarantor's property at risk and should be entered with clear limits.
Buy a little cheaper to bring a comfortable purchase within reach now, rather than stretching to a price the serviceability buffer will not support.
The right move depends on your income, your timeframe and how comfortable you are carrying a larger loan, which is exactly the conversation worth having before you start inspecting.
How a mortgage broker can help
The scheme is uniform, but the lending behind it is not, and that is where advice earns its place. A broker's value is matching your situation to the participating lender most likely to approve you on comfortable terms.
A broker can assess your realistic borrowing capacity across multiple participating lenders, identify which ones treat your income, debts or savings history most favourably, and show how a 95% loan affects your repayments and your buffer. They can help you hold a genuine pre-approval, plan your cash to complete, confirm the price cap for your area, and steer you clear of the small missteps before settlement that can unwind an approval. The aim is a clear, honest view of whether buying now with 5% genuinely suits you, and the smoothest path through if it does.
Frequently Asked Questions (FAQs)
Can I really buy a house with a 5% deposit in 2026?
Yes, eligible first home buyers can purchase with a minimum 5% deposit through the Australian Government 5% Deposit Scheme, and avoid LMI. The important qualifier is that you still need a lender to approve the loan itself, which depends on your borrowing capacity, not just your scheme eligibility. So the 5% deposit gets you to the table, but your serviceability decides what you can actually finance.
Do I still pay LMI under the scheme?
No. Because the government guarantees the gap between your deposit and 20%, the lender treats you as though you have a 20% deposit for insurance purposes, so LMI does not apply. This can save you a significant sum. Keep in mind it removes the insurance cost only; you are still borrowing around 95% of the price, and your repayments reflect that full loan.
Does the government give me money or own part of my home?
Neither. The scheme is a guarantee that sits behind your loan, not a cash grant and not a shared equity arrangement. You own 100% of your property and borrow the rest from a lender in the usual way. The guarantee simply allows you to buy with a smaller deposit without paying LMI.
What deposit do single parents need, and can I apply with someone else?
Eligible single parents and guardians can enter with as little as a 2% deposit through the pathway folded into the scheme. For others, the minimum is generally 5%. You can apply on your own or jointly, including with a partner, friend or family member, usually up to a maximum of two applicants, provided everyone meets the eligibility rules.
Do I need genuine savings, and does qualifying mean the bank will approve me?
Many lenders still want to see genuine savings, meaning money you have accumulated and held over time, often around 5% of the price over at least three months. Qualifying for the scheme does not guarantee loan approval, because the lender still assesses your income, expenses, debts and the serviceability buffer. It is entirely possible to be eligible for the scheme yet limited by what a lender will approve.
What property price caps apply, and can I buy an established home or build?
Price caps apply and vary by location, generally higher in cities and lower in regional areas, so confirm the cap for where you are buying. The scheme covers a range of property types, including an existing home, a townhouse or apartment, a house and land package, an off-the-plan purchase, or vacant land with a building contract. A home priced just over the cap loses eligibility, so the cap is worth checking before you make an offer.
What happens if I move out, and can investors use the scheme?
The scheme is for owner-occupiers, not investors, and carries a requirement to live in the property. You generally need to move in and use it as your home, and there can be consequences if you do not meet the occupancy conditions. If your plans involve renting the property out from the start, this scheme is not designed for that purpose.
The Bottom Line
The 5% Deposit Scheme is one of the most useful tools available to first home buyers in 2026, and the late-2025 changes have opened it to many more people. It genuinely lets you buy years sooner and saves you the cost of LMI, which can be the difference between buying now and waiting. What it does not do is shrink your loan or guarantee approval, so a 95% loan and the comfort of its repayments deserve real thought.
So the smart approach is to line up your scheme eligibility with your true borrowing capacity, budget for the full cash to complete, confirm the price cap for your area, and make sure the repayments sit comfortably within your life rather than at the very edge of it. Get that right and a 5% deposit becomes a genuine head start. And if you are buying around Albury-Wodonga and want help comparing participating lenders and working out whether buying now suits you, Loan Street is always happy to walk through it with you.