First Home Guarantee, Now the 5% Deposit Scheme: Buying Without Paying LMI

The agent has propped the front door open with a wedge, and the hallway smells faintly of fresh paint and someone else’s coffee. It is a Saturday morning in a newer estate, the kind where the trees along the nature strip are still tied to stakes. Inside, a dozen people move through the rooms in that careful, slightly guilty way people do at open homes, touching nothing, opening every cupboard with their eyes.

In the kitchen, a couple in their late twenties have stopped by the window. She has the price guide folded into a small square in her palm. He is doing sums under his breath. They have saved for four years, and what they have is enough for a deposit of about five per cent. For most of those four years, they had assumed that five per cent was not really enough, that the bank would want twenty, or would make them pay for insurance to cover the gap. The question they are whispering is the one thousands of first buyers ask: can we actually do this?

Since 1 October 2025, the honest answer has changed for a lot of people in that kitchen. What the old scheme was called, what it does now, and what it still cannot do for them are worth knowing before they make an offer.

What changed on 1 October 2025

The scheme many people still search for as the First Home Guarantee has a new name. According to the government’s First Home Buyers site, it is now the Australian Government 5% Deposit Scheme, formerly the Home Guarantee Scheme.

The name is the smallest of the changes. From 1 October 2025, the official site lists three things the scheme no longer has:

• No income caps. What you earn no longer decides whether you can use it.
• No waitlists. Places are unlimited, so there is no queue to join.
• No Lenders Mortgage Insurance. The cost that usually comes with a small deposit does not apply to a loan under the scheme.

That third point is the one the couple in the kitchen did not know about. Lenders Mortgage Insurance, or LMI, is the premium a lender usually asks a borrower to pay when the deposit is small. Under the scheme, a government guarantee stands in its place. The official site says it has helped more than 320,000 Australians since 2020.

Who it is for

The scheme is built for two groups:

1. First home buyers with a minimum deposit of 5%.
2. Single parents or legal guardians with a minimum deposit of 2%.

There are further eligibility rules, covering things like citizenship or residency, age and whether you have owned property before. They are set out in the eligibility tool on the First Home Buyers site, and they are worth checking there, against your own circumstances, rather than from a summary like this one. The tool is quick, and it will tell you more reliably than any article whether you fit.

The price caps

This is where the couple’s price guide matters. The scheme has a limit on the property price, and the limit depends on where the home is.

Two numbers have to sit at or below the cap: the purchase price, and the lender’s valuation. If you are buying land and building, it is the combined total that counts. These are the caps as the official site lists them:

“Regional centres” has a specific meaning here. For NSW, the higher cap applies to the Central Coast, Coffs Harbour-Grafton, Illawarra, the Mid North Coast, Richmond-Tweed, and Newcastle and Lake Macquarie. For Victoria it covers Geelong. For Queensland it covers the Gold Coast and the Sunshine Coast.

So a home in Geelong sits under the same cap as one in Melbourne, while a home elsewhere in regional Victoria sits under the lower one. A couple looking along the coast in NSW may find the line between the two caps runs closer to them than they think. The postcode decides, so check it before you fall for the kitchen.

How it works

The scheme does not run through a government office. You apply through a Participating Lender, a bank or lender that has signed up to offer it. You do not apply to Housing Australia directly.

Once a lender pre-approves you under the scheme, the clock starts. The official site says you have 90 days to find a home and sign a contract. Ninety days sounds generous until the second weekend of inspections, so it is worth having a clear idea of the suburb and the cap before you seek pre-approval, not after.

The lender still decides how much it will lend you, after its own look at your finances. The scheme changes what the deposit has to cover. It does not change whether the lender thinks you can make the repayments. If you have not been through a lender’s assessment before, the steps in how to improve your chances of car loan approval in 30 days cover the same habits a home lender looks at, on a smaller scale.

And the guarantee is exactly that, a guarantee to the lender. It is not a gift to you. The official site is clear that you remain responsible for all the costs of buying and for every repayment.

What it does not do

This is the part that tends to get lost in the excitement of the open home, and it is the part worth saying slowly.

It does not shrink the loan. A 5% deposit means borrowing 95% of the price. That is a bigger loan than someone with 20% down would take on for the same house, and a bigger loan means more interest over its life. That is plain arithmetic, and it holds whatever rates do.

It does not shrink the repayments. The scheme removes the LMI cost. It does not reduce what you owe each month on a larger balance.

It comes with ongoing obligations. The official site lists conditions that continue after you buy, such as living in the home as an owner-occupier. If you stop meeting them, the guarantee may no longer apply.

It is not Help to Buy. Help to Buy is a separate government scheme built on shared equity, and it works differently. If you have heard both names and assumed they were the same thing, they are not, and they are worth looking up separately.

Lenders will also count your other debts when they work out what you can borrow. A student loan is the one many first buyers forget, and the way that balance moves each year is set out in the piece on HECS indexation and the 1 June date. It is worth reading before you sit down with a lender, so the number does not surprise you in the meeting.

What buyers say

Numbers on a government page only tell part of it. The rest comes from people who have already done it, and in the online forums where first buyers compare notes, they have been talking.

In one thread asking people who had used the 5% scheme how they were feeling, the most popular reply came from someone who had bought for around $950,000 with five per cent down. They said they were absolutely fine. Their lender had assessed them against a buffer above the actual rate, they wrote, which had left them plenty of headroom, and they had bought a home to live in, not an investment. Another said their repayments were high, but that every one felt like it was paying for part of the house, one room at a time.

Not everyone sounded so settled. One borrower with a loan of about $380,000 said they were fine, but added that their loan was small, and they imagined people with $800,000 loans were not having as much fun. Another buyer described waiting until after Budget night to decide whether to go ahead, watching the market slow before they committed.

These are individual stories, not data, and they do not tell you how you would fare. What they do show is the shape of the experience: comfort tends to depend on the size of the loan against the household’s income, and on how much room the lender’s assessment left. The scheme makes the deposit smaller. The loan is the part you live with.

Before the pre-approval clock starts

Back in the kitchen, the couple are still at the window. The price guide is unfolded now, smoothed flat on the bench. They are not going to make an offer today. They are going home to check three things first.

The price cap for the postcode. They will find the cap for this suburb on the official list, and check whether it is a capital city or regional centre or the rest of the state. Then they will make sure both the price they might pay and the bank’s valuation could sit under it.

That the lender is participating. They will confirm that the bank they want to use is a Participating Lender for the scheme before they ask for pre-approval, because the scheme only runs through those lenders.

The budget at the repayment, not the deposit. They will work out what the repayment on a 95% loan would cost them each month, and whether they could carry it on a bad month as well as a good one. The deposit got them in the door. The repayment is what they will be paying long after the open home is forgotten.

Then, and only then, they will ask for pre-approval, and the 90 days will begin.

This article is general information, not financial advice. Check your own eligibility on the official First Home Buyers site, and talk to a Participating Lender or a licensed adviser about your circumstances.

Sources: Australian Government 5% Deposit Scheme, First Home Buyers, Australian Government (https://firsthomebuyers.gov.au/australian-government-5-percent-deposit-scheme); Property price caps, First Home Buyers, Australian Government (https://firsthomebuyers.gov.au/australian-government-5-percent-deposit-scheme/property-price-caps)