5% Deposit Scheme 2026: Buy Your First Home With 5% and No LMI

What Is the 5% Deposit Scheme?

The Australian Government 5% Deposit Scheme is run by Housing Australia. It was formerly known as the Home Guarantee Scheme, and many people still search for it as the First Home Guarantee, the First Home Guarantee Scheme or the 5 percent deposit scheme.

Normally a lender wants a 20% deposit. If you borrow more than 80% of a home's value, the lender usually charges lenders mortgage insurance (LMI), a one-off premium that protects the lender, not you. Under the scheme, Housing Australia gives your lender a guarantee instead, so you can borrow up to 95% of the value without paying LMI.

Housing Australia's Information Guide (dated 1 July 2026) is blunt: "A Guarantee protects the Participating Lender, not you." If you default and the sale does not cover the debt, the guarantee pays the lender a shortfall up to a pre-agreed limit of up to 15% of the property value. You remain responsible for the loan.

What Changed on 1 October 2025, and What It Means Now

The official First Home Buyers website says: "From 1 October 2025, the changes to the Scheme meant no income caps, no waitlists and no Lenders Mortgage Insurance." Treasury describes the October 2025 expansion as "removing income caps, uncapping the number of places and increasing property price limits".

A Treasury media release dated 1 October 2026 says Housing Australia data shows 102,594 first home buyers used the expanded scheme in its first year, and more than 280,000 Australians have been supported since 2022. The same release estimates the LMI saving at "around $23,700" for a first home buyer purchasing the national median-priced home with a 5% deposit.

The RBA lifted the cash rate to 4.60% at its September 2026 meeting, and its October 2026 Financial Stability Review says: "Housing prices have declined in recent months as housing market sentiment has weakened, reflecting the somewhat restrictive stance of monetary policy and changes to negative gearing and capital gains tax discount policies." That is why the negative equity headlines of October 2026 matter. For what the rate rise means for repayments, read our explainer on the RBA rate rise to 4.60%.

5% Deposit Scheme Eligibility: Who Can Use It

Your lender checks these rules, and you sign a Home Buyer Declaration, a Commonwealth statutory declaration. A false declaration can lead to criminal penalties.

The 10-year rule means a previous owner can use the scheme again once a decade has passed. The guide also says you must use as much of your savings as possible for the deposit; moving money to someone else to stay under 20% goes against the intent of the scheme.

Single parents and single legal guardians of at least one dependent child apply under the single-parent version, with a 2% minimum deposit and a guarantee of up to 18%. Housing Australia's separate guide says that if you qualify as both a first home buyer and a single parent, you must apply as a single parent, and that version requires that you do not currently own property rather than the 10-year test.

5% Deposit Scheme Price Caps by State in 2026

Both the purchase price and your lender's valuation must be at or below the cap; for land plus a separate build, the combined cost must fit. Caps from the First Home Buyers website and the 1 July 2026 Information Guide, checked 28 October 2026:

The "regional centres" that share the higher cap are, in NSW, the Central Coast, Coffs Harbour–Grafton, Illawarra, Mid North Coast, Richmond–Tweed, and Newcastle and Lake Macquarie; in Victoria, Geelong; and in Queensland, the Gold Coast and Sunshine Coast. Some suburbs span more than one postcode with different caps, so use the official postcode search tool and confirm the cap with your lender before you bid.

What Property You Can Buy Under the Scheme

The scheme covers new or existing houses, townhouses and apartments, house and land packages, off-the-plan purchases, and vacant land with a separate building contract. Owner-builder contracts are not eligible, and land you already owned before securing a place does not qualify.

A building contract must be with a licensed and registered builder, insured, at arm's length and fixed price. Delays, cost increases and builder insolvency are not covered by the guarantee.

How the 5% Deposit Scheme Works, Step by Step

You cannot apply to Housing Australia directly. Everything runs through a participating lender or one of its authorised representatives.

1. Check eligibility. Use the tool on firsthomebuyers.gov.au.
2. Talk to a participating lender. The lender assesses you, then reserves a guarantee place with Housing Australia. That place is held for 14 days while you complete the application.
3. Complete the application. Provide proof of citizenship or residency, your Medicare number and the Home Buyer Declaration.
4. Search within 90 days. Once your place is pre-approved you have 90 days to find a home and sign a contract. Your loan still needs the lender's own credit approval.
5. Settle and move in. The lender manages final approval. You then meet the ongoing owner-occupier rules.

You may apply with more than one participating lender, but must choose one before you sign a contract. Compare full loan costs, not headline rates. Pre-approval basics are covered in our guide to home loan pre-approval.

How Much Deposit Do You Need to Buy a House?

So how much deposit to buy a house? Lenders usually want 20% to avoid LMI. With 10% you can usually borrow but will normally pay LMI. With 5%, a scheme-backed 5% deposit home loan is the main way to avoid LMI if you are eligible. On top of the deposit you need stamp duty (unless a concession covers it), conveyancing, inspections, lender fees and a buffer.

There is an upper limit too: with 20% or more saved after purchase costs, your loan is not eligible for the scheme.

Worked Example: A $700,000 First Home in Brisbane

Every figure here is illustrative, including the 6.9% interest rate, which is not a quote from any lender.

Mia is buying a $700,000 established house in Brisbane to live in, under the $1,000,000 Brisbane cap. Queensland's first home concession reduces transfer duty to nil at this price: the Queensland Revenue Office home concession rate gives $17,350 of duty on $700,000, and the first home concession amount for homes up to $709,999.99 is also $17,350.

The 5% route costs Mia about $691.53 more a month and about $143,951 more interest over 30 years if the rate never changed. In return she skips saving another $105,000. Saving that gap at $1,500 a month would take 70 months, almost six years, and Treasury notes some purchasers save for up to 11 years. Whether buying now is better depends on what prices and rents do in those years, which nobody can promise.

On scheduled repayments alone, Mia's balance would take about 129 months, close to 11 years, to fall to $560,000, the 80% point where the guarantee ends. Treasury says most people move off the scheme in 2.5 years on average, but the release does not say how, so ask your lender what would end your guarantee and what that would cost.

Is the 5% Deposit Scheme Risky If House Prices Fall?

This was the question in the news in October 2026. Housing Australia's own guide lists the small-deposit risks: paying more interest, being more affected by rate rises, having less equity at the start, and owing more than the property is worth if its value falls.

Mia's illustrative balance after 12 months is about $658,114. If her home's value fell that year, her equity would look like this (selling costs an illustrative 2.5%).

Negative equity bites when you have to sell or refinance, not while you can keep paying and stay put. The RBA's October 2026 Financial Stability Review says "Recent buyers and those who took out higher LVR loans are more likely to be in negative equity. This includes first home buyers participating in the Australian Government 5% Deposit Scheme." It also says hardship or arrears for scheme participants "remain contained", and that participants were assessed at interest rates 3 percentage points above their offered rate under APRA's serviceability buffer.

Stamp Duty and First Home Concessions by State

The guide confirms the scheme does not stop you using state or territory programs, including first home buyer stamp duty concessions. These were the rules on each revenue office's site on 28 October 2026.

Each concession has its own residence rules and deadlines. NSW buyers can read our First Home Buyer NSW guide for the full process from deposit to settlement.

The Ongoing Rules: When the Guarantee Ends

Buying is not the end of the obligations. The guide says the guarantee stays in place until one of these happens:

If it ends while your loan is above 80% of the value, the guide warns your lender "may impose Lenders Mortgage Insurance (LMI) or other costs in line with your lender's policies and loan conditions."

Can You Rent Out or Airbnb a Home Bought With 5%?

Not while the guarantee applies. Housing Australia's guide gives the example of James, who wants to move in with a partner and rent his place out: "Converting the property into a rental (i.e. investment property) is not allowed." Renting out the property is listed as an event that ends the guarantee. The guide does not separately deal with renting a room or hosting short stays, so get your participating lender's answer in writing before you list any part of the home on Airbnb or anywhere else.

That does not close the door on investing. A long-term rental is a solid investment, and a well-chosen, well-run Airbnb can earn materially more from the same property while the owner keeps control of pricing, length of stay and personal use. For most first home buyers the path is sequential: live in your first home, build equity, then use it for a separate investment set up properly from day one, with council and strata rules checked first.

Our first home to property portfolio story and the Airbnb buyers agent page show how the second step works.

Five Mistakes First Home Buyers Make With a 5% Deposit

Questions to Ask Your Lender and Your Buyers Agent

Ask any participating lender, and any buyers agent (also called a buyers advocate), these questions.

• Which loan products can I use under the scheme, and at what rate?
• How will you value the property, and what happens if the valuation comes in under the contract price?
• What would you charge if my guarantee ended while my loan is above 80%?
• Buyers agent: how do you work out what a home is worth from comparable sales, not the advertised guide?
• Buyers agent: do you take any commission, referral fee or kickback from developers or sellers?

How a Home Buyers Agent Helps a 5% Deposit Buyer

With a 5% deposit, overpay by 3% and most of your equity is gone on day one. That is the problem a home buyers agent solves: setting a brief that fits the price cap and your budget, searching listed and off-market homes, inspecting, pricing each home against recent sales, and negotiating or bidding for you, through to settlement.

WTP's home buyers agent fee is $12,000 (GST included) for homes up to $1 million, with a sliding scale above that. The retainer starts from $1,000 and comes off the fee, and you can pay at settlement or spread the fee (3 months interest-free, or 12, 24 or 36 months with interest after the first 3 months) so it does not reduce your deposit. Check the figures for your price range in the home buyers agent fee calculator, and compare agents using our buyers agent fees guide.

Related Reading

• First Home Buyer NSW Guide: From Deposit to Settlement
• Home Loan Pre-Approval: Why It Matters Before You Buy
• Bank Valuations and the Risks of Overpaying for Property
• How Buyers Overbid and Overpay Even Without Real Competition
• Rent-Vesting in Australia: Pros, Cons and Key Risks

This article is general information only. It does not take your objectives, financial situation or needs into account. Get licensed financial, tax, legal and lending advice before you act, and confirm every rule with the official source, because scheme rules, caps and concessions change.

Sources (Checked 28 October 2026)

• Australian Government 5% Deposit Scheme, First Home Buyers website (Housing Australia).
• 5% Deposit Scheme Information Guide for First Home Buyers, Housing Australia, dated 1 July 2026.
• 5% Deposit Scheme Information Guide for Single Parents, Housing Australia, dated 1 July 2026.
• Property Price Caps and Participating Lenders, First Home Buyers website.
• Helping 100,000 first home buyers into a home of their own, Treasury ministers, 1 October 2026.
• Financial Stability Review, October 2026, Reserve Bank of Australia; cash rate target.
• First Home Buyers Assistance Scheme, Revenue NSW.
• First home buyer duty exemption or concession, State Revenue Office Victoria (updated 22 October 2026).
• Concession rates and First home (new home) concession, Queensland Revenue Office (updated 31 July 2026).
• First home buyer relief: relief available, RevenueSA.
• First Home Owner Rate of Duty fact sheet, RevenueWA (as at 28 July 2026).
• Home Buyer Concession Scheme, ACT Revenue Office.
• First home buyers of established homes duty relief, State Revenue Office Tasmania.