How to Get 5% Deposit Home Loans in Australia (2025 Guide)

How It Works

When you take out a 5% deposit home loan, you borrow 95% of the property’s value (a 95% loan-to-value ratio or LVR). Under normal circumstances, any home loan with an LVR above 80% means you have to pay Lenders Mortgage Insurance (LMI). This protects the lender if you default on your loan. LMI can add thousands of dollars to your upfront costs.

However, under the Australian Government’s Home Guarantee Scheme (HGS), eligible first-home buyers can enter the market with just a 5% deposit – without paying LMI. That’s because the Government guarantees you the remaining 15% needed to reach an 80% LVR. Remember that spots in the scheme are limited each financial year, so they are not always available on demand.

Key Differences from Standard Home Loans

Going in with just a 5% deposit does come with a few trade-offs:

• You’ll be borrowing more, so your monthly repayments will be higher.

• Lenders might be stricter with their approval criteria, adhering to the standard lending approval criteria, including the necessity for lenders mortgage insurance (LMI) and loan deposit proof (LDP)

• Interest rates could be slightly higher to balance out the added risk for the bank.

• It will take longer to pay off the loan, so you will pay more in total interest over its lifetime.

Getting into the market sooner might be worth the downside. Instead of spending years saving a 20% deposit, a 5% loan lets you buy earlier – potentially benefiting from rising property prices while you’re already in the market rather than still saving for it.

Government Support: The Home Guarantee Scheme (HGS)

The Home Guarantee Scheme (HGS), which used to be called the First Home Loan Deposit Scheme, is a government initiative designed to help you buy your first home sooner. With this scheme, the Government guarantees part of your home loan. You can purchase a property with as little as a 5% deposit and skip paying LMI.

Three Guarantees Under The Home Guarantee Scheme

The Home Guarantee Scheme offers three different guarantees, depending on your situation:

1. First Home Guarantee (FHBG): This program helps eligible first-time home buyers purchase a home with a 5% deposit, with the Government guaranteeing up to 15% of the property value.

2. Regional First Home Buyer Guarantee (RFHBG): This program works the same as the FHBG but is designed for buyers in regional areas. It often has lower price caps to reflect local property values.

3. Family Home Guarantee (FHG): This program supports eligible single parents with dependent children who want to buy a home with as little as a 2% deposit, regardless of whether they are first-time home buyers.

Eligibility Criteria for a 5% Deposit Home Loan

Who Can Apply?

Not everyone qualifies for a 5% deposit home loan under the Home Guarantee Scheme. To be an eligible home buyer, here’s what you need to tick off:

• You must be an Australian citizen or permanent resident.

• Your income needs to be within the limits:

• Singles: Up to $125,000 per year (taxable income)

• Couples: Combined taxable income up to $200,000 annually (must be in a de facto relationship or married).

• For the First Home Guarantee, you must be a first-home buyer who has never owned property in Australia.

• For the Family Home Guarantee, you must be a single parent with at least one dependent child.

• The property must be for you to live in – this scheme doesn’t apply to investment properties.

• You need to move in within six months of settlement, so you cannot buy now and rent it out first.

Property Price Caps

The Home Guarantee Scheme has price caps on properties you can buy, depending on the location.

If you want to buy a property outside these limits, you won’t qualify for the HGS. These change over time, so you’ll need to check the latest price caps for your area to ensure the property you’re looking at qualifies under the scheme. You can find the most up-to-date limits on the Housing Australia website.

Participating Banks & Lenders

Not every bank will approve a 5% deposit loan, but plenty do – mainly if you apply through the Home Guarantee Scheme. You can’t apply for the scheme alone – you must go through an approved lender. Both major banks and smaller lenders participate, so you’ve got several options.

Major Banks Offering 5% Deposit Home Loans

If you prefer a well-known name, these major banks are currently part of the scheme:

• Commonwealth Bank

• Westpac

• NAB

• Bank of Melbourne

• St. George Bank

• BankSA

Smaller Lenders Also Participating

The scheme also includes several smaller lenders and credit unions, such as:

• Australian Military Bank

• Bank First

• Bendigo Bank

• Great Southern Bank

• G&C Mutual Bank

• Indigenous Business Australia

• Regional Australia Bank

You can check out the full, up-to-date list of lenders on the Housing Australia website.

Additional Lender Requirements

Just because you qualify for the Home Guarantee Scheme doesn’t automatically mean a bank will hand you a loan. You still need to meet the lender’s standard lending approval criteria. Banks aren’t in the business of losing money – they’ll want to be confident you can repay the loan.

Your lender will assess your credit history to ensure you have a solid track record of managing debt. A late payment here or there won’t ruin your chances, but a long history of missing bills and a bad credit score could be a red flag.

Stable employment is another big one – most lenders prefer applicants who’ve been in the same job (or at least the same industry) for a while. They’ll also closely examine your income and expenses, ensuring you can comfortably cover your repayments after factoring in your everyday living costs.

If you’re already juggling personal loans, credit card debt, or other financial commitments, they’ll also weigh that into the decision. Having genuine savings – money you’ve steadily built up over time rather than a sudden cash gift – can strengthen your application.

Key Differences Between Lenders

Not all lenders are created equal. Even those participating in the Home Guarantee Scheme offer different loan products, interest rates, and features. Some key things to consider are:

• Fixed vs. Variable Rates – Do you want the stability of a fixed interest rate or the flexibility of a variable one?

• Loan Features – Does the loan come with an offset account or allow extra repayments to help you pay it off faster?

• Fees – Some lenders charge hefty application or ongoing account fees, while others are more competitive.

• Customer Service—If you prefer to deal with a real person rather than an online chatbot, make sure the lender’s service meets your expectations.

• Repayment Flexibility – Can you adjust your repayment frequency or loan term if needed?

Working with a mortgage broker can help you navigate these options and find the most suitable lender.

Pros and Cons of a 5% Deposit Home Loan

Getting into the market with a 5% deposit can be a game-changer, but it’s not without its trade-offs. While you’ll need to borrow more and pay higher interest, the ability to buy sooner means growing equity faster instead of spending years chasing rising property prices. Here’s a closer look at the pros and cons of a 5% deposit home loan:

Pros

• Buy Sooner – Skip years of savings and get on the property ladder now rather than waiting for a 20% deposit.

• Lower Upfront Cost – You only need a fraction of the usual deposit, making homeownership more accessible.

• No LMI – The Home Guarantee Scheme removes Lenders Mortgage Insurance (LMI), saving you thousands.

• Equity Growth – If property prices rise, your home’s value could increase while you save, meaning you build wealth sooner.

• More Stability – Locking in a mortgage repayment could be more predictable than rising rents.

Cons

• Higher Loan Amount – Borrowing more means larger monthly repayments.

• Risk of Negative Equity – If property values drop, you might owe more than your home is worth.

• Interest Rate Impact – Some lenders charge higher interest rates on low-deposit loans.

• Limited Places – The Home Guarantee Scheme only has a set number of spots per year.

• Break Costs – If you lock in a fixed-rate loan and need to refinance or sell early, exit fees can be high.

Ultimately, the decision will depend on your personal circumstances. Before deciding, ensure a 5% deposit loan fits your long-term financial plans.

How to Apply for a 5% Deposit Home Loan

If you’re considering the Home Guarantee Scheme, here’s how the process works – from getting pre-approved to finally getting the keys to your new home.

Step 1: Check If You Qualify

First things first: make sure you meet the scheme’s eligibility criteria. That means checking things like income limits, citizenship status, and whether you’re a first-time home buyer or a single parent applying under the Family Home Guarantee. Housing Australia has an eligibility tool to help you check, so it’s worth starting there.

Step 2: Find a Participating Lender

Not every bank is part of the scheme, so you’ll need to go through an approved lender or one of their authorised mortgage brokers. You can’t apply for the scheme alone – only these lenders can submit applications. So, make sure you pick one that offers reasonable rates and features and is also part of the scheme.

Step 3: Apply for a Home Loan & the Scheme

Once you’ve chosen a lender, you’ll apply for a home loan as usual. They’ll check your income, savings, credit history, and borrowing power to determine eligibility. If it all looks good, they’ll apply for a spot in the Home Guarantee Scheme on your behalf. But it’s not automatic – Housing Australia has to approve your place in the scheme first.

Step 4: Get Approved & Start House Hunting

If your application gets the green light, your lender will approve your loan. With the Government guaranteeing up to 15% of the loan (or 18% for the Family Home Guarantee), your LVR drops to 80% – which means no LMI. Now, you can start house hunting, but remember, the property needs to fall within the scheme’s price caps.

Step 5: Final Loan Approval & Settlement

Once you’ve found a home that meets the scheme’s requirements, your lender will conduct a final assessment and approve the property purchase. After all paperwork is completed and settlement goes through, the home is officially yours – it’s time to pop the champagne and start planning the housewarming.

Getting a 5% Deposit Home Loan Without the Home Guarantee Scheme

If you don’t qualify for the Home Guarantee Scheme, that doesn’t mean you’re locked out of the market. There are still ways to buy a home with a 5% deposit, though they come with a few extra costs and conditions. The two most common options are low-deposit home loans with LMI and guarantor loans.

Low-Deposit Home Loan with LMI

A low-deposit home loan is a standard mortgage where the bank lets you borrow up to 95% of the property’s value. The catch? You’ll have to pay Lenders Mortgage Insurance (LMI) since your deposit is under 20%. LMI can cost anywhere from a few thousand dollars to over $30,000, depending on the loan amount and lender. Some banks allow you to add LMI to your loan, meaning you’ll pay interest on it over time.

The upside is that buying a home with a smaller deposit is the easiest way. If you have a stable income, a decent credit score, and can afford the repayments, this could be a good option – especially if you want to get into the market sooner rather than later. Just make sure to factor in the extra cost of LMI when working out what you can afford.

Guarantor Loan

A guarantor loan allows you to skip LMI entirely by using a family member’s property as security. Instead of needing a 20% deposit, the guarantor – typically a parent – offers up a portion of the equity in their home to cover the shortfall. This arrangement can allow you to borrow up to 100% of the property price, making homeownership possible even without a large deposit.

The main benefit is avoiding LMI, saving tens of thousands of dollars. However, the risk falls on the guarantor. If repayments are missed, the lender can use their property as security to recover the debt. This puts significant financial responsibility on both parties. Most borrowers aim to release their guarantor from the loan once they have built up enough equity, but this process can take several years.

Financial Support for First-Home Buyers

The Australian Government offers various financial support options to help first-home buyers achieve their dream of owning a home. One of the most popular options is the Home Guarantee Scheme, which allows eligible home buyers to purchase a house with a deposit as low as 5% without paying Lenders Mortgage Insurance (LMI). This scheme can significantly reduce the upfront costs, making homeownership more accessible.

Another valuable support option is the First Home Owner Grant (FHOG). This is a one-off payment for eligible first-home buyers who purchase or build a residential property to live in. Unlike other financial aids, the FHOG is not based on financial considerations such as income. Instead, the grant amount depends on the value of the property being purchased. These initiatives by the Australian Government are designed to ease the financial burden on home buyers and help them get into the property market sooner.

Saving for a Deposit

Saving for a deposit is a crucial step in the home-buying process. Eligible home buyers can take advantage of the First Home Super Saver Scheme to save for their deposit using their superannuation fund. This scheme allows home buyers to save faster by enabling them to withdraw voluntary super contributions they’ve made to their super. It’s a smart way to boost your savings while benefiting from the tax advantages of super contributions.

In addition to the super saver scheme, home buyers can consider using a high-interest savings account or a term deposit to save for their deposit. These accounts offer higher interest rates compared to regular savings accounts, helping your money grow faster. It’s essential to have a clear understanding of the deposit requirements and to plan accordingly to avoid delays in the home-buying process. Setting a realistic savings goal and sticking to a budget can make a significant difference in reaching your deposit target.

Understanding Loan Repayments

Understanding loan repayments is crucial for home buyers to manage their finances effectively. Home loan repayments typically consist of interest and principal. Interest repayments pay the interest on the loan balance, while principal repayments reduce the loan balance. Knowing the differences between these two components can help you better understand how your repayments are structured.

Home buyers can choose from various loan repayment options, including fixed interest rate, variable rate home loan, or a combination of both. A fixed interest rate offers stability with consistent repayments, while a variable rate home loan provides flexibility and the potential to benefit from lower market interest rates. It’s essential to consider factors such as market interest rates, loan balance, and repayment frequency when choosing a loan repayment option. Understanding these elements will help you select the best repayment plan for your financial situation.

Managing Your Loan

Managing your loan effectively is crucial to avoid financial stress and achieve your long-term financial goals. Home buyers can manage their loans by making regular repayments, monitoring their loan balance, and adjusting their repayment frequency as needed. Staying on top of your loan balance helps you track how much you owe and how much progress you’re making in paying off your home loan.

Using a home loan account can also be beneficial. Features such as offset accounts and redraw facilities can help you reduce the interest you pay and provide flexibility in managing your finances. Additionally, home buyers can consider refinancing their loan to take advantage of better interest rates or to switch to a different loan product. Refinancing can lower your monthly repayments and save you money over the life of the loan.

Additional Costs and Fees

In addition to the loan repayments, home buyers must consider additional costs and fees associated with buying and owning a home. These costs and fees include stamp duty, conveyancing fees, and ongoing costs such as council rates and insurance. It’s important to factor in these expenses when calculating the total cost of owning a home to avoid any financial surprises.

Home buyers can also consider using a mortgage broker to help them navigate the home-buying process and find the best loan option for their needs. A mortgage broker can provide expert advice, compare different loan products, and assist with the application process. By understanding and planning for these additional costs and fees, home buyers can ensure a smoother and more financially manageable home-buying experience.

Tips for First-Home Buyers Using a 5% Deposit Loan

Buying a home with a 5% deposit is a great way to get into the market sooner, but it also comes with a few extra considerations. Here’s how to set yourself up for success and avoid common pitfalls.

• Plan for Higher Repayments – A smaller deposit means higher monthly repayments. Budget for potential interest rate hikes to avoid stress down the track.

• Boost Your Savings – Lenders like to see genuine savings, not just a lump sum gift. Extra funds also help cover stamp duty, legal fees, and moving costs.

• Be Realistic About Your Budget – Stick to properties within the scheme’s price caps and consider emerging suburbs for better value.

• Make Extra Repayments Early – If your lender allows it, even small extra payments can help you build equity faster and save thousands in interest.

• Use an Offset Account – If your loan allows it, an offset account can help reduce the interest you pay while keeping funds accessible.

• Think Long-Term – Homeownership is a big commitment. Make sure your job, lifestyle, and future plans align before jumping in.

Conclusion

A 5% deposit home loan – especially through the Home Guarantee Scheme – can fast-track your way into the property market without waiting years to save a 20% deposit. While it comes with higher repayments and added borrowing expenses, getting in sooner can mean building equity faster. Just make sure you understand the costs and long-term commitments. It’s still a huge investment, so you want to be sure before jumping in.

Want expert advice about 5% deposit home loans? Check out the top 10 list of local mortgage brokers for your area: